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Please give answers to each questions with clear steps, and please writing or typing the answers clearly. It's better to type the answers, many thanks! Exercise 2 Your investment portfolio consists of $15,000 invested in only one stock Microsoft, with an expected return of 12% and a volatility of 40%. Suppose the risk-free rate is 5% and the market portfolio has an expected return of 10% and a volatility of 18%. Assume that CAPM assumptions hold. a) What alternative investment has the lowest possible volatility while having the same expected return as Microsoft? What is the volatility of this investment? b) What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment? c) Graph your results and give an interpretation. Exercise 3 You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns: Year 2007 2008 Risk-free Retun 3% 1% Market Retum 6% XYZ Retum 0% -37% a) What was XYZ's average historical returni? b) Compute the market's and XYZ's excess returns for each year. Estimate xYZ's beta. c) Estimate XYZ's historical alpha. d) Suppose the current risk-free rate is 3%, and you expect the market's return to be 8%. Use the CAPM to estimate an expected return for XYZ Corp.'s stock e) Would you base your estimate of XYZ's equity cost of capital on your answer in part (a) or in part (d)? How does your answer to part (c) affect your estimate? Explain

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