Construct a portfolio consisting of the Euro Stoxx 50 Index and the risk-free asset that will produce an expected return of 12 per cent. Contrast the risk on this portfolio with the risk of Daimler. (20 marks)

Below, you are given the expected returns and standard deviations of L’Oréal and Daimler AG, the Euro Stoxx 50 Index of largest Eurozone firms, and the risk-free asset.
Asset Expected Return (%) Standard Deviation (%)
L’Oréal 16 30 Daimler 12 25 Euro Stoxx 50 13 12 Risk-free asset 3 0