Your investment portfolio consists of $18,000 invested in only one stockMicrosoft. Suppose the risk-free rate is 4%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 8% and a volatility of 18%. Under the CAPM assumptions,

a. What alternative investment has the lowest possible volatility while having the same expected return as Microsoft? What is the volatility of this investment?

Sell: $________ worth of Microsoft stock. (Round to the nearest dollar) Borrow: $_______ at the risk free rate (Round to the nearest dollar) Buy: $_______ worth of the market portfolio (Round to the nearest dollar) Buy: $_______ worth of risk free investment (Round to the nearest dollar)

b. What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment?

Sell: $________ worth of Microsoft stock. (Round to the nearest dollar)

Borrow: $_______ at the risk free rate (Round to the nearest dollar)

Buy: $_______ worth of the market portfolio (Round to the nearest dollar)

Buy: $_______ worth of risk free investment (Round to the nearest dollar)