Use these data for the following questions:
You manage a risky portfolio with expected rate of return of 18%and standard deviation of 28%. The T-bill rate (lending rate) is 8%and borrowing rate is 10%. Your clientA????1s degree of risk aversion isA = 3.5.
a.Draw the CAL (capital allocation line with different borrowingand lending rates) on an expected return-standard deviationdiagram.
b.Calculate the Sharpe-Ratio (reward-to-variability ratio) ofthe risky portfolio assuming you can borrow and lend at the samerate, 8% .
c.What proportion, y, of the total investment should be investedin your fund?
d. What is theexpected return and standarddeviation of the rate of return on your clientA????1s optimizedportfolio?