1. List the five main functions that commercial banks carry out in their role as the primary providers of intermediated finance to the household and business sectors of the economy. Explain what each of these functions are and their importance for the financial system.
2. You plan to invest in Stock X, Stock Y, or some combination of the two. The expected return for X is 10% and σx= 5%. The expected return for Y is 12% and σy = 6%. The correlation coefficient, ρxy, is 0.75. Suppose rm = 12%, σm = 4% and rF= 6%. What is the required return on a portfolio with σp = 10%.