You are given the following information about a risk-free asset, two risky assets A and B and the Mean Variance Efficient Portfolio (MVEP):

It is known that MVEP is composed by only A and B. Answer the following questions (Note: all can be answered independently of each other):

1. (8 points) Your friend Peter overhears that there is a risky asset C. C has expected return E(R_C) = 12% and standard deviation _C = 9%. i) Calculate the Sharpe ratio of C and MVEP. ii) What do you think about Peters credibility as an investment advisor (Hint: Find out if there is any problem with his information on C)
2. (4 points) Peter double checks and finds out the correct expected return for C is E(R_C) = 8%. He also confirms _C = 0.4. Would you say asset C is too cheap or too expensive?
3. (8 points ) Suppose you invest only in the MVEP and the risk-free asset. Your portfolio has p = 0.6. What is the weight of asset A in your portfolio?