Consider an economy spanned by two risky assets A and B that have the following characteristics: E(RA) = 0.08; A2 = 0.04

E(RB) = 0.15; B2 = 0.10

AB = - 1 a) Compute the covariance between the return of the two assets.

b) Suppose that you aim for an expected return of 20%, what should be the composition of your portfolio? What is the risk of that portfolio? Explain how this strategy can be possible.

c) Draw the investment opportunity set and clearly identify the minimum variance portfolio, its composition and its characteristics.

d) Is there a risk-free asset in this economy? If so, what is its return?