2) A market consists of a risk-free asset with return 4% and two risky assets, A and B, with risk 10% and 20% respectively. The returns of the assets are independent.

The tangent portfolio has weights (0, 0.6, 0.4).

a) Calculate the risk of the tangent portfolio.Ans: 10%

b) Find the portfolio on the efficient frontier with risk 8%.Ans: (0.2, 0.48, 0.32)

c) In part b, if the investor has $ 10,000, explain his investment strategy

d) Suppose asset A has return 10% and asset B has return 5%. Find the portfolio on the efficient frontier with return 6%.Ans: (0.5, 0.3, 0.2)