Consider the market with a risky security P such that E(r_P)=12.00%, _P =40.00%. Investor Emily can lend and borrow at risk-free rate of 2%, while investor George can lend and borrow at risk-free rates of 2% and 4%, respectively.

1.What is the weight of security P in the optimal portfolio of Emily if her coefficient of risk aversion is 2?

a. y =0.20

b. y =0.00313

c.y =0.50

d. y =0.3125

e. y =0.33

2.What is the utility function of Emily from her optimal complete portfolio (portfolio with T-bills and security P) is equal to?

a. U=0.0031

b. U =0.074

c. U=0.056

d. U=0.0356

e. U=0.3125

3.For what range of the coefficient or risk aversion of George, A, he will neither borrow nor lend in the money market?

a. A<0.5 and A>0.625

b. 0.5A0.625

c. 0.5

d. A>3

e. 1A3