1. Use the following information:

E[r_XOM] = 15.6%, standard deviation_XOM = 15.9%

E[r_MS]=29.7%, standard deviation_MS = 35.2%

Correlation of returns: _XOM,MS = 0.139, r_f=10%

If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places)

2. When choosing the best point of the POS (the curved line connecting two possible assets you can invest in) you need to find the point that:

a. Has the greatest difference between its return and the risk free rate, thus leading to the best return

b. You must solve for the optimal y allocation in order to find the best point on the POS

c. The point with the lowest standard deviation

d. The point with the greatest Sharpe ratio