The expected return of market portfolio is 10%. The standard deviation of market portfolio is 20%. Risk free interest rate is 2%. There is an investor with mean-variance utility function Answer the following questions.

1) Calculate the optimal weight to be invested in the market portfolio for the investor with A=5 . Calculate the expected return and standard deviation of the optimal complete portfolio for the investor.

(10 marks)

2) According to the CAPM, calculate the expected returns of two stocks (stock 1 and stock 2) with betas equal to 0.8 and 1.5 respectively.

(10 marks)

3) Calculate the beta and expected return of the portfolio that invests 20%, 60%, and 20% on stock 1, stock 2, and the risk-free asset, respectively.