Question 3 [12 points] Consider an economy with two states which occur with equal probability at t=1. Suppose the CAPM holds. The risk free rate is 1%. The market portfolio has an expected return of 12% and generates the state dependent payoff (100, 200) at t=1. There are two assets. Asset A generates the state dependent payoff (10, 40) at t=1. Asset B generates the state dependent payoff (30, 20) at t=1. (a) Determine the beta of each of the assets? [4p] (b) Suppose an investor has mean variance (CAPM-) preference and can either choose asset A or asset B for free. Which asset should he choose? [6p] (c) What is the maximum price the investor is willing to pay for the chosen asset? [2p]