1. USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Asset (A) E(RA) = 25% // (A) = 18% // WA = 0.75 // COVA,B = 0.0009

Asset (B)

E(RB) = 15% // (B) = 11% // WB = 0.25

a. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?

b. What is the standard deviation of this portfolio?

2. Consider an asset that has a beta of 1.5. The return on the risk-free asset is 6.5% and the expected return on the stock index is 15%. The estimated return on the asset is 20%. Calculate the alpha for the asset.

3. An investor wishes to construct a portfolio consisting of a 70% allocation to a stock index and a 30% allocation to a risk free asset. The return on the risk-free asset is 4.5% and the expected return on the stock index is 12%. The standard deviation of returns on the stock index 6%. Calculate the expected standard deviation of the portfolio.