Problem 3. Consider investing money into two stocks. Suppose they have expected returns of 10% and 15% respectively. Assume further that they have standard deviations of 15% and 25%, with correlation coefficient of 50%. a) What is the expected return on the equally-weighted portfolio? b) Calculate the expected return and standard deviation of the portfolio that is composed of 70% of the 1st stock and 30% of the 2nd stock. c) How can you get a portfolio with an 18% expected return? What is the risk of this portfolio? Assume further that, in addition to the two risky assets, there is a risk-free assets with return of 3% 2 d) Assuming an investor with risk aversion coefficient of A = 5, compute the composition of the optimal risky portfolio of two stocks and the optimal capital allocation between the risky portfolio and the risk-free asset