Alicia wants to divide her budget between two investments, A and B, with respective expected returns and and risks and . Assume < and < . The correlation between the investment returns is .

a)suppose (, ) = 2 /2. Calculate what fraction of her budget she should invest in A.

b) Alicia invests in period 1 according to your answer in a). By the end of period 1, her budget has changed by the return realised in period 1. How should she invest in period 2?