Question: Compute the expected return and risk on your portfolio using the following information, If you invest 20%, 40%, and 40% in assets A,B, and C:

Compute the expected return and risk on your portfolio using the following information, If you invest 20%, 40%, and 40% in assets A,B, and C: Expected returns on assets A,B, and C respectively, 10%, 5% and 2%. Standard deviations of A, B and C respectively 10%, 6% and 1%. The covariances between the assets are all zero but the covariance between B and C which is 1

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=+ a. Derive the equation describing labor demand in this economy as a function of the real wage and the capital stock. (Hint: Review Chapter 3.)

=+ The economy has 1,000 units of capital and a labor force of 1,000 workers.

=+ b. If the real wage can adjust to equilibrate labor supply and labor demand, what is the real wage?