Question 1 (25 credits) During the lectures we talked about the Capital Asset Pricing Model (CAPM). Assume for this question that it. An investor holds a portfolio that consists of two risky assets (asset A and B) and the risk free rate. In addition, the annual expected excess return on the market portfolio equals 5%, with a standard deviation of 9% and the risk free rate is 2% annually. The betas of the risky assets are provided in the table below. beta Risky asset A 1.15 Risky asset B 0.95 Market Portfolio 1 In addition, the correlation matrix of the assets is shown in the following table. Risky asset A Risky asset B Market Portfolio Risky asset A -0.2 0.85 Risky asset B 0.92 Market Portfolio 1 The investor invests (75,000 in each of the risky assets A and B and an additional C100,000 in the risk free deposit. a) Calculate the annual volatility of the portfolio that consists of the two risky assets A and B and that of the total investment portfolio. b) Calculate the annual expected return of the portfolio that consists of the two risky assets A and B and that of the total investment portfolio. C) Draw a picture of the security market line, including the correct position of the risky assets A and B and the market portfolio. d) Draw a picture of the capital market line, including the correct position of the risky assets A and B and the market portfolio. In addition you should also put a sketch of the mean-variance frontier in the picture as well. e) When considering both pictures you drew in c) and d), explain why in the context of the CAPM only systematic market risk is priced. Be complete, but concise and to the point with your answer. f) Calculate the 10% GUISE of the total investment, for an investment horizon of 5 years, as has been explained during the lectures. The investor had to pay an initial cost of 2% and the annual costs are 1%. Note: Assume that under b) you have