A market has only two stocks, A and B, whose details are given below. The correlation between returns of the stocks is given by =1/3. There is also a bank offering a risk free return of 6.25%, and the market satisfies CAPM. (Continued next page) a) Calculate the expected return and risk of the market portfolio. (4 marks) b) Find the correlation between returns of Stock A and the market portfolio - accurate to 3 decimal places. (2 marks) c) An investor wants an investment with a risk of 12% and the highest possible Sharpe ratio. Find the weights of his investment portfolio. (4 marks) d) Does Stock B lie on the efficient frontier? Explain. (2 marks) (Note: Solve this carefully as answers to each part of the question may affect subsequent parts.) A market has only two stocks, A and B, whose details are given below. The correlation between returns of the stocks is given by =1/3. There is also a bank offering a risk free return of 6.25%, and the market satisfies CAPM. (Continued next page) a) Calculate the expected return and risk of the market portfolio. (4 marks) b) Find the correlation between returns of Stock A and the market portfolio - accurate to 3 decimal places. (2 marks) c) An investor wants an investment with a risk of 12% and the highest possible Sharpe ratio. Find the weights of his investment portfolio. (4 marks) d) Does Stock B lie on the efficient frontier? Explain. (2 marks) (Note: Solve this carefully as answers to each part of the question may affect subsequent parts.)