Question 6, Consider a risky asset whose payout will be either $0 or $200 with equal probability of 50% The risk free rate is 5%. If I told you the risk premium of the asset is 20%, what must be the price? $100 $125 $75 $80 Question 7. Consider a portfolio that offers an expected rate of return of 12% and a variance of 10% T-bills offer a risk-free 7% rate of return, what is the maximum level of risk aversion for which the risky portfolio is still preferred to bills? A 2 Question 8. You are a mean-variance optimizer with A assets is 3. Recall that the optimal holdings of risky Suppose there are two risky assets, Asset 1 has and expected return of 10% and variance of 14%. Asset 2 has and expected return of 8% and variance of 10%. The risk free rate is 3%. The risky assets are uncorrelated What fraction of wealth is held in asset 2? 6 3 Question 9. Consider a single index model. Let ri and r, denote the returns on two risky assets and rM the return on the market. Corr(ri,r is equal to, Question 10. According to the CAPM, in a graph with expected return on the y-axis and on the z-axis every asset will be on the security market line. This is a line with what slope and intercept respectivly? EIR M ERM,rf