Question 2: You are managing an equal-weighted portfolio of stocks (A&B) on behalf of your company's treasury. Assume that stock A and stock B are two risky assets. C is a risk-free asset. The details of these stocks are below:

Stock A

Stock B

C(Risk-free asset r_f)

Average return

7.00%

15.00%

2.00%

Variance of return

0.0064

0.0196

Sigma of return

8.00%

14.00%

Covariance of returns

0.0011

Required

Using the information in the above stated table calculate the following:

a.Expected market portfolio return, E (RM) and the market excess return.

b.The Sharpe ratio