1. Every time the return of asset A is x%, the return of asset B is -0.5*x%. For instance, if A goes up by 1%, B goes down by 0.5%. a. What is the correlation between the returns of assets A and B? b. What is the lowest possible standard deviation that could be achieved by constructing a portfolio of A and B? How can you achieve it?

2.The table reports expected return and volatility for three portfolios on the efficient frontier (computed for risky assets). Which of these portfolios cannot possibly be the tangency portfolio? The risk-free rate is 3%. Portfolio A Portfolio B Portfolio C Exp. Return 8% 10% 12% Volatility 13% 17% 24%