Assume that the following data represent all risky securities in the economy. 1. What is the market portfolio i.e. what percentage of each security must be invested to achieve the market portfolio? What is the standard deviation of the market portfolio? 2. If the risk free rate of return is 5% and the expected return on the market portfolio is 13%, what are the Capital Market Line and Security Market Line equations? 3. A pension fund that you are advising wishes to have an expected rate of return of 17%. How should the fund invest to obtain this? What would be the standard deviation and the beta of the pension funds portfolio?

Correlation Coefficient Matrix A B C D 1.0 0 0 0 Security Value in Standard Class deviation millions 40 5.0% A B 40 10.0% 60 20.0% D 60 30.0% 0 0 0 0 1.0 0 0 0 1.0 0 0 0 1.0