(13 marks) Assume that you currently have 40% of your wealth in a risk-free asset and 60% in the two mutual funds as shown below, which you may assume are efficiently and correctly priced:

Fund	Expected Return on Stock (%)	Beta of Fund	% of Wealth Invested in Fund
A	7.8	0.80	25
B	10.8	1.20	35

Required: (be sure to show your work)

(a) Using the CAPM, and assuming the market is in equilibrium, calculate the risk-free rate and the expected return on the market portfolio. (4 marks)

Notwithstanding your answers in part (a), use r_f = 2% and E(r_M) = 10% for parts (b) through (d).

(b) Calculate the expected return on your portfolio. (3 marks)

(c) Calculate the beta of your portfolio (3 marks)

(d) You want to invest in only the risk-free asset and the market portfolio. You want an expected rate of return of 7%. How would you allocate your wealth between the risk-free asset and the market portfolio? (3 marks)