1) You are given the following information about the risky debt and risky equity portfolios 8.0% E(Ro) E(R) 12.0% 13.0% 20.0% Graph E(Rp) as a function of Wvarying W from 0 to 1 in increments of .05. 2) Graph or as a function of We varying We from 0 to 1 in increments of .05. Do this for p=-1, p = 0, P=.3 and p = 1 all on the same graph. For p = -1 calculate the value of We that provides a perfect hedge and check that this agrees with the graph. 3) Graph E(R) as a function of Op. Do this for p = -1, p = 0, p = .3 and p = 1 all on the same graph. To do this, vary We from 0 to 1 in increments of .05. 4) Assume a risk-free rate of 5% and p = .3 Find the We that maximizes the Sharpe ratio (use goal seek or solver): EC, bor, Se Use the formulas you developed in question 3. Identify the E(Rp) and on that correspond to this weight. This is the optimal risky portfolio. Also find the We that produces the minimum variance portfolio and the E(Rp) and on that correspond to this weight. 5) Graph the CAL using the maximum Sharpe ratio you just calculated and the portfolio opportunity set from problem 3 (for p = .3) on the same graph. Show that the CAL is tangent to the portfolio opportunity set at the optimal risky portfolio. 6) Finally, maximize the investor's utility using A = 6, subject to the constraint that the investors complete portfolio (riskless asset and optimal risky portfolio) lies on the CAL. What is the optimal E(R.), 0, and the percent in the optimal risky portfolio? Draw an indifference curve for the maximum utility on the same graph as the CAL. Check to see that the indifference curve is tangent to the CAL