3. There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The expected return on the market portfolio is 12% and the standard deviation is 20%. The risk-free asset yields 4%. The return on Asset B has standard deviation 40% and market beta 1. Assume that the CAPM holds. (a) Compute the expected return of asset B and its covariances with assets A and C. Compute the correlation between assets A and B. (b) Consider a portfolio of assets A and B, with weight w on asset A and 1 w on asset B. Compute the expected return and standard deviation of the portfolio in the three cases w = 0, w = 1/2 and w = 1. 1 (c) Can you rank the three portfolios in the question above? Explain. (d) Consider a portfolio of assets B and C, with equal weight on each asset. Denote this portfolio as asset D. Compute the expected return and standard deviation of asset D. (e) Consider a portfolio of assets A and C. Find the weights such that the standard deviation of this portfolio is the same as that of asset D in the question above. What is the expected return of this portfolio? (f) What can you say about the mean-variance efficiency of assets A, B and C (i.e., are they efficient portfolios)? Explain. (g) Construct an efficient portfolio from assets A, B and C with an expected return of 10%