Form a portfolio with two risky assets a and b Expected return of the portfolio E(rp) = Wa *E(ra) + Wb *E(ro) Variance of the portfolio o = wo + w o + 2wqWbObPab Assume that investors utility function is: U = E(r) A A*0 E(r): expected return 02: variance A: coefficient of risk-aversion/degree of risk-aversion What should be the weight of asset a and asset b in the optimal portfolio which gives investors the highest utility (hint: solve for the weights when maximizing U and let weight of asset b = 1 - weight of asset a)