Write down steps leading to your answer so you can get partial credits. Only giving a one-number answer is not acceptable. Round your final answer to one decimal place if you use percentage, or three decimal places if you don't use percentage (e.g. 20.5\%, or 0.205).

1. In the CAPM world, an individual risky asset A has the following characteristics: E(rA)=12%, A=2, and the risk-free rate is 2%. What is the expected market return E(rM) in this economy? (4 points)
2. Suppose in a hypothetical economy, there exist two financial assets A and B, and their returns are perfectly negative correlated with AB=-1. The following information is also given: E(rA)=8%, ErB=2%, A=15%, B=9%. What is the equilibrium risk-free rate in this economy? (6 points)