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Essay Questions Question 1(2 points) The ABC company wants to invest in two risky assets over the next 12 months. Analysts predict that the expected return on asset A is 5% per annum and on B it is 7% per annum. The standard deviation of the returns for asset A is 8% and for asset B it is 9%. The correlation between the two assets in 0.4 and the risk-free rate is 5.5% per annum. What combination of the two assets will give returns that exceed the risk-free rate? Question 2 (3 points) On1/1/2014you sold short1,000 shares of Sigma Ltd which were selling at $25 per share. You gave $15,000 to your broker to establish your margin account. The maintenance margin requirement is 40%. How high can Sigma's share price rise before you get a margin call? Question 3(2 points) A mutual fund had a net assets value (NAV) per share of $19.00 on January 1, 2013. On 31 December of the same year, the fund's NAV was $19.14. During the year the fund's income distributions were $0.57 and the capital gain distributions were $1.12per share. Withou considering taxes and transactions costs, what rate of return did an investor receive on the func ast year