2. a) Graph the capital market line, the security market line and the characteristic lines. On your graph identify the relevant axis, and on the relevant graphs indicate the positions of the risk free rate, the market portfolio, the investment opportunity set, and the risk and return of the market portfolio. b) What were the two major problems with the portfolio theory that led to the development of the capital asset pricing model. c) Given om = 10%, rm= 12% and rf= 5% i) If a well diversified portfolio has o, = 7%, what is its expected return? ii) If a well diversified portfolio has an expected return of 20%, what is its Op? 2. a) Graph the capital market line, the security market line and the characteristic lines. On your graph identify the relevant axis, and on the relevant graphs indicate the positions of the risk free rate, the market portfolio, the investment opportunity set, and the risk and return of the market portfolio. b) What were the two major problems with the portfolio theory that led to the development of the capital asset pricing model. c) Given om = 10%, rm= 12% and rf= 5% i) If a well diversified portfolio has o, = 7%, what is its expected return? ii) If a well diversified portfolio has an expected return of 20%, what is its Op