(Portfolio of a risk-free asset and a risky stock) You are considering investing in a combination of a stock and a risk-free asset. The stock has an expected return of 7% and standard deviation of return of 15%, and a risk-free asset with return of 3%.

a. Complete the table below, and graph the expected portfolio return as a function of the portfolio standard deviation.

b. Suppose you’re investing $1,000. What is the meaning of a portfolio invested 150% in the risky asset?

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1 A Expected stock return B C 7% 2 Stock standard deviation 15% 3 Risk-free rate 3% 4 51989 Proportion of stock in portfolio Portfolio standard Portfolio deviation expected return 6 0% 7 10% 20% 30% 10 40% 11 50% 12 60% 13 70% 14. 80% 15 16 17 567 90% 100% 110% 18 120% 19 130% 22 20 140% 21 150%