Suppose there are two risky stocks. Stock one has an expected return of 10 % and a return standard deviation of 20 %. Stock 2 has an expected return of 5 % and a return standard deviation of 10 %. The correlation between the returns of the two stocks is .5. There is also a riskless asset with a return of 3 %. (a) Suppose you put a fraction w1 of your wealth in stock 1 and a fraction w2 of your wealth in stock 2, with (1 w1 w2) going to the riskless asset. What is the expected return, return variance, and Sharpe ratio of this portfolio of risky assets? (b) What is the minimum variance portfolio you can form from investing only in stock 1 and stock 2? (c) What portfolio of stocks 1 and 2 has the largest Sharpe ratio? (i.e. is the tangency portfolio) (d) Suppose you are a mean variance investor that maximizes E(Rp) 2 V ar(Rp) where Rp is the return on your portfolio of both risky and riskless assets. What fraction of your wealth should you invest in each of the three assets available?