a. Use the following information:

E[rXOM] = 15.6%, standard deviationXOM = 15.9%

E[rMS]=29.7%, standard deviationMS = 35.2%

Correlation of returns: XOM,MS = 0.139, rf=10%

If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places)

b. When choosing the best point of the POS (the curved line connecting two possible assets you can invest in) you need to find the point that:

1.Has the greatest difference between its return and the risk free rate, thus leading to the best return

2. You must solve for the optimal y allocation in order to find the best point on the POS

3. The point with the lowest standard deviation

4. The point with the greatest Sharpe ratio