There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of 20%. The risk-free asset yields a return of 4%. Asset B is a risky asset whose return has a standard deviation of 40% and a market beta of 1. Assume that the CAPM holds.

1. Compute the expected return of asset B and its covariances with asset A (the market portfolio) and asset C (the risk-free asset), respectively.
2. Consider a portfolio of the two risky assets, A and B, with weight w in asset A (the market portfolio) and 1 w in asset B. Compute the expected return and return standard deviation of the portfolio with w being 0, 1/2, and 1, respectively, and enter them into the following table:

Portfolio weight w	0	1/2	1
Expected return
Standard deviation

3. Can you rank the three portfolios in the question above? Explain.
4. Consider a portfolio with equal weights in asset B and C (the risk- free asset). Denote this portfolio as asset D. Compute the return standard deviation and expected return of asset D.
5. Consider a portfolio of asset A (the market portfolio) and C. Find the portfolio weight such that its return standard deviation is the same as that of asset D in Question (d). What is the expected return of this portfolio?
6. What can you say about the mean-variance efficiency of asset A, B and C (i.e., are they efficient portfolios)? Explain.
7. Construct an efficient portfolio from the assets A, B and C with an expected return of 10%.