For Questions 1-3, consider the following setting. The investible universe contains two risky assets, A and B, and the risk-free asset. The tangency portfolio constructed from the two risky assets has the following asset weights: wA = 0.7 and wB = 0.3. The standard deviation of the tangency portfolio is 12% and its expected return is 8%. The risk-free rate is 2%.

(1): Joe is very risk-averse. He would like to have an investment portfolio with a standard deviation of 6%. Joes optimal portfolio will have the following weights in the risk-free asset, asset A and asset B, respectively:

a.wF = 1; wA = 0.7; wB = 0.3

b.wF = 0; wA = 0.7; wB = 0.3

c.wF = 0.5; wA = 0.35; wB = 0.15

d.wF = -1; wA = 1.4; wB = 0.6

e.wF = 0.75; wA = 0.125; wB = 0.075

(2): The expected return of Joes portfolio will be:

a.5% b.8% c.20% d.12% e.10%

(3): Mary would like to earn an expected return of 14% on her portfolio. Marys optimal portfolio will have the following weights on the risk-free asset, asset A and Asset B, respectively: a.wF = -1; wA = 1.4; wB = 0.6

b.wF = -0.5; wA = 1.4; wB = 0.6 c.wF = 0; wA = 0.7; wB = 0.3

d.wF = 0.5; wA = 0.35; wB = 0.15

e.wF = -1; wA = 0.7; wB = 0.3