Please do all parts, after number 8, use the new information for 9,10, and 11.

Question 3 (Total: 12 points) You are given the following information about a risk free neset and the Mean Variance Efficient Portfolio (MVEP): Ry = 5%. E[RAVBP = 15% and o(RAVEP) = 15% Answer the following questions. (Note: they can both be answered independently of each other) (a) (points) A friend of yours is investing all her wealth on what she believes to be a "great" portfolio This portfolio, call it OMEGA, has the following characteristics E|Roma Al = 10% and o(Roniga) - 10% Convince your friend that this portfolio is actually not that "creat" because it is not efficient. In particular, show her that she can do better than this portfolio by proposing to be an efficient portfolio (call it Pl) that has the same standard deviation of portfolio OMEGA but higher expected return. You must show clearly why this portfolio is better (i.e. find the expected return of portfolio P1 and compare it with the expected return of the OMEGA portfolio) and how you would create it (ie find the proportion that you should invest in each security to create this new portfolio P1) Question 3a In order to generate the same standard deviation of OMEGA, what should be the weight invested in MVEP, XMVEP ? (Round to 3 decimal places) Question 8 3 pts Question 3a Given the weight, what is the expected return (in percentage, round to 2 decimal places) of your portfolio P1? Now, lets find the optimal portfolio that your friend should actually be investing in. Suppose your friend his preferences defined by the standard utility function: U -- E(R) - 5 x A xoti in which E(R) and on are, respectively, the expected return and the variance of the returns of security ind A is the investors coeflicient of risk version. Your friends' risk aversion is - 5. Find your friends optimal portfolio (call it P2). For the answer to be complete, you need to report the proportion that you should invest in each security to create this optimal portfolio P2, and also the expected return and standard deviation of the returns of this optimal portfolio P2. D Now, lets find the optimal portfolio that your friend should actually be investing in. Suppose your friend has preferences defined by the standard utility function: V = E(R) 5 x A xorna in which E(R) and on, are, respectively, the expected return and the variance of the returns of securityi; and A is the investors coefficient of risk aversion. Your friends' risk aversion is A = 5. Find your friends optimal portfolio (call it P2). For the answer to be complete, you need to report the proportion that you should invest in each security to create this optimal portfolio P2, and also the expected return and standard deviation of the returns of this optimal portfolio P2. Question 9 2 pts Question 3b You know that is 5. Calculate the fraction that your friend should invest in the risky security in the optimal portfolio XMVEP Question 10 2 pts Question 3 What is the expected return (in percentage, round to 2 decimal places)) of the optimal portfolio? Question 11 2 pts Question 3 What is the standard deviation (in percentage, round to 2 decimal places)) of the optimal portfolio