The one-month riskfree rate is 0.4%. Risky asset A has a mean return of 1.5% a month and a standard deviation of 10%. Risky asset B has a mean return of 0.8% a month and a standard deviation of 5%. The correclation between the returns of A and B is 0.4. Call the portfolio with the highest sharpe ratio a portfolios

(HS: Expected return = 0.0115, Variance = 0.004125, ST. Dev. = 0.064226, Sharpe = 0.116774842)

A. you have $10,000. If you would like to invest half of it in the riskfree security and half in the highest sharpe portfolio, what would be the expected rate of return and standard deviation of the portfolio?

B. If you desired to invest your money in a way that you earn 3% a month (in expectation), how would you do that give the setup?

C. The market cap of stock A is 5.3B and that of stock B is 3.1B. Is the market in a CAPM equilibrium? Why?