Consider the following information about a risky portfolio that you manage, and a risk-free asset: E(rP ) = 11%, σP = 15%, rf = 5%. a) Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? [5 marks] b) What will be the standard deviation of the rate of return on her portfolio? [5 marks] c) Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse? [5 marks]

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Consider the following information about a risky portfolio that you
manage, and a risk-free asset: E(rP ) = 11%, σP = 15%, rf = 5%.
a) Your client wants to invest a proportion of her total investment budget in your risky
fund to provide an expected rate of return on her overall or complete portfolio equal to
8%. What proportion should she invest in the risky portfolio, P, and what proportion
in the risk-free asset? [5 marks]
b) What will be the standard deviation of the rate of return on her portfolio? [5 marks]
c) Another client wants the highest return possible subject to the constraint that you limit
his standard deviation to be no more than 12%. Which client is more risk averse?
[5 marks]

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