1. Brenda Box, an investor, holds the market portfolio, which has an expected return of 13% per annum and a standard deviation of 18%. Brenda also has access to the risk-free asset which has a rate of return of 5% per annum and a standard deviation of 0%. She may also borrow at the same risk-free rate. Brenda wishes to move to a portfolio which has a return of 15% per annum, which will maximize her utility.

(i)Using the above information, explain what Brenda could do to creat a portfolio with a 15% per annum rate of return.

(ii)If Brenda creates this new portfolio, what will be its standard deviation?

2.The following indirect rates against the Australian dollar are available.

USD / AUD 0.5923.

GBP/ AUD 0.5137.

Calculate the cross rate, viz., the GBP / USD rate, and provide a brief interpretation

of what this rate means