2 (if it is held in isolation)
Stock X Stock Y	30%	1.3
Stock Y	40%	0.9

Suppose the average risk aversion of investors is 2,2

M = 10% and risk-free return is 2%. a. Compute the expected returns of X and Y. b. How much risk (measured in terms of variance) can be reduced if X and Y are added to a well-diversified portfolio? c. Use Sharpe measure to determine which stock performs better if the actual returns are 29% for X and 22% for Y and they are added to a well-diversified portfolio. d. Suppose investors now are less risk averse because they have more wealth than before. As a result, the average risk aversion of investors falls from 2 to 1.2. Compute the changes in expected returns of X and Y and explain, with the aid of a diagram, the intuition behind the changes.