Question 2: You are managing an equal-weighted portfolio of stocks (A&B)on behalf of your company's treasury. Assume that stock A and stock B are two risky assets. C is a risk-free asset. The details of these stocks are below:

Average return Stock A 7.00% Stock B 15.00% C(Risk-free asset r_f) 2.00%

Variance of return Stock A 0.0064 Stock B 0.0196

Sigma of return Stock A 8.00% Stock B 14.00%

Covariance of returns Stock A 0.0011

Required

Using the information in the above stated table calculate the following:

a.Expected market portfolio return, E(RM) and the market excess return.

b.The Sharpe ratio