Investment Management Inc. (IMI) uses the capital market line to make asset allocation recommendations. IMI derives the following forecasts:

• Expected return on the market portfolio: 12%

• Standard deviation on the market portfolio: 20%
• Risk-free rate: 5%
Samuel Johnson seeks IMI’s advice for a portfolio asset allocation. Johnson wants the standard deviation of the portfolio to equal half that of the market portfolio. Using the capital market line, what expected return can IMI provide subject to Johnson’s risk constraint?
For Problems 23 through 26: Suppose that the borrowing rate that your client faces is 6%. Assume that the equity market index has an expected return of 10% and standard deviation of 25%, that rf = 2%, and that your fund has the parameters given in Problem 21. p-936