Samantha is presented with two risky asset options A and B, with expected returns and standard deviations as follows: Stock Expected Return St. Deviation A 15% 10% B 20% 15% C 40% 20% The covariance between stocks A and B is equal to 0.015. Only positive weights are allowed. 1. If we only know that Samantha is risk-averse and allowed to invest in one of the two risky assets (A or B), can we predict her choice? Explain. 2. If Samantha is allowed to mix the two risky assets (no short positions allowed; only positive stock weights), show graphically her portfolio opportunity set. 3. It appears that Samantha is extremely risk averse and she decides to invest in the minimum variance portfolio. Calculate the expected return and variance of the minimum variance portfolio and mark it on the portfolio opportunity set. 4. Claudia, Samanthas best friend, is risk neutral and faces the same dilemma; she is allowed to invest in (and mix) the two risky assets A and B. Can you predict her choice for the optimal risky portfolio? Estimate its expected return and standard deviation. 5. Stock C is perfectly negatively correlated with stock A. Samantha did not consider it initially, due to its high standard deviation, but after our last lectures she is having second thoughts.. Can you help her construct a portfolio, using stocks A and C, that is strictly preferable (given her risk profile) to any other alternative? Calculate its expected return and standard deviation.