There are only two investors and two risky assets (Stock A and B) in the market. The investors are Mr. Black and Mrs White. Mr. Black invests 6 billion dollars on Stock A, $4 billion on Stock B and $1 billion on risk-free bank deposit while Mrs White spends $7.5 billion buying stock A, $5 billion buying B and $10 billion on risk-free bank deposit. The returns of A and B are as follows:

A B

Expected Return % 10 15

Standard Deviation % 10 20

The correlation between two returns is 0.

i) What is the market portfolio (of risky assets)?

ii) Suppose the CAPM holds, what is the risk-free return in equilibrium?

iii)What are the numerical equations for the CML and SML of the market?

iv) Draw the diagrams of CML and SML. Do Asset A and B lie on them?