2. Mary has $100000 and needs to make a decision about how to invest this wealth for a one year period. Asset A is a risky asset. The return on asset A measures the percentage growth in the amount invested in Assets A at the end of one year. Asset A is a risky asset and the returns RA can be modelled as a continuous random variable with pdf fira), mean return E{RA} = A=,15 (15%) and standard deviation of returns A = 25. There is also a risk-free asset that provides a certain (constant) return r = .05 (oj 0). Mary chooses o, the fraction of wealth invested in the risky asset A. The remaining wealth (fraction 1 - a) is invested in the risk-free asset. (a) What is the mean and standard deviation of returns when Mary places of her wealth in risky asset A? (b) Write both the mean return and the standard deviation of returns as a function of o. Show that both y and o are linear with respect the fraction a. (c) Use a graph to show the and o combinations that are possible when 0 Sasi. Put on the vertical axis and o on the horizontal axis. Explain and show how the set of p and o combinations would change if a > 1 was possible. Explain and show how the set of and o combinations would change if a > 0 was possible. 2. Mary has $100000 and needs to make a decision about how to invest this wealth for a one year period. Asset A is a risky asset. The return on asset A measures the percentage growth in the amount invested in Assets A at the end of one year. Asset A is a risky asset and the returns RA can be modelled as a continuous random variable with pdf fira), mean return E{RA} = A=,15 (15%) and standard deviation of returns A = 25. There is also a risk-free asset that provides a certain (constant) return r = .05 (oj 0). Mary chooses o, the fraction of wealth invested in the risky asset A. The remaining wealth (fraction 1 - a) is invested in the risk-free asset. (a) What is the mean and standard deviation of returns when Mary places of her wealth in risky asset A? (b) Write both the mean return and the standard deviation of returns as a function of o. Show that both y and o are linear with respect the fraction a. (c) Use a graph to show the and o combinations that are possible when 0 Sasi. Put on the vertical axis and o on the horizontal axis. Explain and show how the set of p and o combinations would change if a > 1 was possible. Explain and show how the set of and o combinations would change if a > 0 was possible