Assume that the CAPM holds in the economy. The following data is available about the market portfolio, the riskless rate, and two risky assets, W and X: The market portfolio has a standard deviation equals to 12%, stock W has an expected return equals to 18%, standard deviation equals to 14%, and beta equals to 1.2, and stock X has a standard deviation equals to 12% and beta equals to one. The risk-free rate is 3%.

1. What is the expected return and the beta of the market portfolio? (2 marks)

2. What is the expected return on asset X? (2 marks)

3. Does asset X lie on the Capital Market Line? Explain why or why not. (2 marks)

4. Suppose you invested $88,000 in these two stocks. The beta of your portfolio is 1.10. How much did you invest in each stock? What is the expected return of this portfolio? (2 marks)