Suppose that your finance department provides you the following information:

Fund	Expected return	Standard deviation	Beta
ABZ	12%	22%	1,5
FP4	4%	10%	0,8
IOT	8%	19%	1,12

Correlation Matrix
	ABZ	FP4	IOT
ABZ	1
FP4	0,55	1
IOT	-0,87	-1	1

1) In equilibrium, can the risk-free rate be lower than 5%? Can you determine its value?

2) Suppose that you want to build your portfolio with at most 2 of these 3 stock and with an expected return equal to 10%. Can you do it? How?

3) Suppose that the risk free rate is the one that you found from (1). The market risk premium is 16%. You are considering to add either one of these three stocks to your - already well diversified - Portfolio. Which one would you choose?