Assume that the CAPM holds. The risk-free rate is 5%, and the standard deviation of the market portfolio is 20%. As a rational investor, you have chosen a portfolio that combines the market portfolio and the risk-free asset (such a portfolio is called an efficient portfolio). Suppose that your portfolio has an expected return of 10% and a standard deviation of 15%. a) What is the expected retum on the market portfolio? b) If your portfolio is worth $100,000, how much is your investment in the market portfolio and the risk-free asset, respectively? c) Your friend also has 100,000 to invest and he desires an expected retum of 20%. What would be your recommendation about his portfolio allocation? How much money should he invest in the market portfolio? ) What is the standard deviation of your friend's portfolio if he follows your recommendation? What is the Sharpe Ratio of your friend's portfolio? How does this Sharpe ratio compare to the Sharpe ratio on your portfolio and the market portfolio? Plot the three portfolios on the appropriate return-risk graph. e) Assume that the market portfolio is composed of only two stocks, A and B, and they represent 40% and 60% of the market portfolio, respectively. A has a beta of 0.7. What is the beta of B? f) Suppose that the correlation between A and the market is 0.3 and the correlation between B and the market is 0.9. Which stock has the lower risk if an investor wants to invest 100% of his wealth in either A or B