There are three risky assets in the economy (A, B, and C) that are all uncorrelated with each other. The riskless rate for borrowing and lending is 4%. The table below summarizes the information for each stock regarding its expected return and variance:

(a) Compute the MVE portfolio weights of these three stocks and the expected return and volatility of the tangency portfolio.

(b) Suppose the CAPM holds and these are the only three risky assets in the economy. If stock-A has a market capitalization of $100 million, what are the market caps of stock-B and stock-C?.

Stock Expected Return Variance of Return A 14% 0.004 B 12% 0.002 11% 0.002 Stock Expected Return Variance of Return A 14% 0.004 B 12% 0.002 11% 0.002