1. Assume CAPM holds. The expected rate of return of the market portfolio is 18% and the standard deviation of the market portfolio is 28%. The T-bill rate is 8%.

1. Your client chooses to invest 70% of a portfolio in the market portfolio and 30% in a T- bill money market fund. What is the expected return and the standard deviation of his portfolio?
2. Draw the CAL of your portfolio on an expected return-standard deviation diagram. Whatis the slope of the CAL? Show the position of your client on your fund's CAL.
3. Suppose that your client decides to invest in the market a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 16%. What is the proportion the client invest in the market portfolio and what is yourclient's portfolio standard deviation?
4. Suppose that your client prefers to invest in the market a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that thecomplete portfolio's standard deviation will not exceed 18%. What is the investmentproportion in the market portfolio? What is the expected rate of return on the complete portfolio?

2. Firm A has expected return of 12% with beta of 1.5. Firm B has expected return of 11% with beta of 1. What would be the expected return of the market portfolio and the risk free rate according to the CAPM?

3. Assume CAPM holds. The expected return on the market = 15%, risk-free rate = 8%, actual return on XYZ security = 17%, beta of XYZ security = 1.25. CalculateXYZ's alpha.