1. Fund International Inc. (FII) serves two types of investors: risk-taking and risk-averse investors by offering two portfolios: high-risk and low-risk. The broad stock market index is expected to increase by 14% and Government of Canada T-bills is projected to earn a yield of 3%. The consensus among investors is that the stock market will remain as volatile as the past year with a standard deviation of 22%. The low-risk portfolio has a standard deviation of 10%, while the high-risk portfolio has a standard deviation of 30%. Both portfolios are on the efficient frontier. What are the expected returns on these two portfolios based on the CAPM?

2) Profits generated by banks are normally distributed. Regulators are reviewing Ontario Banks performance and evaluating its soundness. Ontario Bank is estimating its profit in the coming year has a mean of $1.5 million and a standard deviation of $3.5 million. How much additional equity capital should regulators require Ontario Bank for there to be a 99% chance of the capital (currently at $5 million) not being wiped out by losses?