Please use the following formulas only to answer the question

2. If real interest rate is 1% per year, and inflation is 4% per year. What is the nominal interest rate per year? 1. Arithmetic average stock returns .-= (+r)x(1+r)x.X(1+r)] 1 = 19+r)*-1 2. Geometric average stock returns 3. APR versus EAR: APR = N xr EAR=(1+r)-1 Where N number of period per year r: return rate per period 4. In the scenario analysis, the expected return and variance of a stock are: E[r]=u= p(sr(s) Var[r]=o= ps(r(s)- E[r])? 5. Covariance and correlation coefficient between two securities - Covtri:] Pi Covl 1,r]=E[(-44)(1,-1)= E[Gr.-44. 6. Real vs nominal interest rate 1+R , R-i 1+R=(1+r)*(1+i)=r=1+ 1+i Where R: nominal interest rate, r: real interest rate, i: inflation rate 7. For a portfolio with two assets 1 and 2, the expected return and variance is 0; = Var[r,] = E[(", -,)(r, -4,)] 4 = Er]= w[/]+w,E[r]=W,44 + W, = wo+w202 + 2w,w.100, In the special situation where the second asset is risk free rate, = w01 8. The Sharpe ratio of a portfolio E[r]-17 S 0 9. Risk aversion of an investor: A Elrol-r; 10. Minimum variance portfolio (two securities) 03-P120,02 W +03-28120,02 11. Optimal tangency (or market) portfolio composition (two securities) (E[r]1,)-0,0,(E[7]-7) w,= To (E[r] "p)+c] (E[vi] "p) 2007(E[ri]+E[ra] 20's)