Assume that the assumptions underlying the CAPM hold and that the yield to maturity of short-term German government bonds is 5% (risk-free rate). The expected return of the market portfolio is 15% and its standard deviation is 20%. Fabrizio wants to invest $100,000 in a portfolio with as high an expected return as possible but with a volatility of at most 10%.

1. (6 points) How much money he should invest in what assets or portfolios?

2. (5 points) What would be his expected return and how much volatility his investment would be exposed to?

3. (3 points) What would be his portfolios Sharpe Ratio and how does it compare to the Sharpe Ratio of the market portfolio? Explain.

4. (3 points) What is the beta of his investment?