1.) Assume your client believes in the strong-form of market efficiency as it relates to security selection, what portfolio substitution(s) would you make to your optimal risky portfolio? No calculations are necessary.

2.) After meeting with the client, she informs you that she prefers a return higher than that of the optimal risky portfolio. Is this possible to achieve and if so, how? What does that indicate about your initial assumptions regarding the indifference curve?

Expected Return vs Risk for Assets A&B - Efficient Frontier CAL Indifference Curve Expected Return 12.DON 10.COM 6.00 S.COM 400K 3.00 ODON .DON 2.00% 400 6.00M 300% 12.00 14.00 15.00% 5.00% 20.00% 10.00 Risk Optimal allocation of A&B Optimal Portfolio 93% % Portfolio A % Portfolio B Portfolio return Portfolio risk Risk premium Sharpe Ratio Risk Free 0.00% 0.00% 2. 19% 0.00% 23.24% 17.76% 21.05% Cov (A, M) Portfolio A slope Portfolion A beta 1.86% 0.9244 0.9253 Portfolio A alpha Monthly Portfolio A alpha Portfolio A alpha 0.0026 0.0316 0.0332 Cov (B, M) Portfolio B slope Portfolio B beta 0.41% 0.2106 0.2052 Portfolio B alpha Monthly Portfolio B alpha Portfolio B alpha 0.0179 0.2154 0.2237