Greta has risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfoli

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Greta has risk aversion of A = 3 when appliedto return on wealth over a one-year horizon. She is pondering twoportfolios, the S&P 500 and a hedge fund, as well as a numberof 1-year strategies. (All rates are annual and continuouslycompounded.) The S&P 500 risk premium is estimated at 7% peryear, with a standard deviation of 20%. The hedge fund risk premiumis estimated at 10% with a standard deviation of 35%. The returnson both of these portfolios in any particular year are uncorrelatedwith its own returns in other years. They are also uncorrelatedwith the returns of the other portfolio in other years. The hedgefund claims the correlation coefficient between the annual returnon the S&P 500 and the hedge fund return in the same year iszero, but Greta is not fully convinced by this claim.a-1. Assuming the correlation between theannual returns on the two portfolios is indeed zero, what would bethe optimal asset allocation? (Do not roundintermediate calculations. Enter your answers as decimals roundedto 4 places.)
a-2. What is the expected risk premium on theportfolio? (Do not round intermediate calculations.Enter your answer as decimals rounded to 4 places.)