1. Portfolio Theory and CAPM: The stock market comprises two stocks, A and B, and a risk-free asset. The return on the risk-free asset is Rg = 3%. The table below gives the expectations, standard deviations, and covariances for the two stocks' returns. (15 points) Standard Covariance Covariance Expectation Deviation with RA with RB RA 0.16 0.25 0.0625 0.03 RB 0.12 0.20 0.03 0.04 (a) What are the weights of stocks A and B in the tangency portfolio? (5 points) (b) Suppose that CAPM holds, calculate the CAPM beta of stock A and B. (3 points) (c) Calculate the Sharpe Ratio of stock A, B and, the market portfolio. (2 points) (d) Suppose Meredith has the following utility function U = E[Rp] 2Var[R] = where R, is her portfolio return. If she has $1,000 for investment, how much money does she have in stock A, B, and the risk-free asset? (5 points) 1. Portfolio Theory and CAPM: The stock market comprises two stocks, A and B, and a risk-free asset. The return on the risk-free asset is Rg = 3%. The table below gives the expectations, standard deviations, and covariances for the two stocks' returns. (15 points) Standard Covariance Covariance Expectation Deviation with RA with RB RA 0.16 0.25 0.0625 0.03 RB 0.12 0.20 0.03 0.04 (a) What are the weights of stocks A and B in the tangency portfolio? (5 points) (b) Suppose that CAPM holds, calculate the CAPM beta of stock A and B. (3 points) (c) Calculate the Sharpe Ratio of stock A, B and, the market portfolio. (2 points) (d) Suppose Meredith has the following utility function U = E[Rp] 2Var[R] = where R, is her portfolio return. If she has $1,000 for investment, how much money does she have in stock A, B, and the risk-free asset? (5 points)