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.