1. Consider an investor choosing between two risky portfolios: a large-cap stock portfolio and a small-cap stock portfolio. Although forecasts about the future are subjective, suppose for simplicity that the investor expects that the future statistics will be those in the following table, with a risk-free rate of 4%. The forecasted 0.605 Sharpe ratio of the small-cap portfolio is higher than the 0.548 ratio of the large-cap portfolio but suppose the investor does not want the high 35.2% volatility associated with the small-cap stocks. a. What percentage of the portfolio would an investor need to hold in cash to reduce the risk of a portfolio invested in the small-cap portfolio and cash to the same risk level as that of the largecap portfolio? b. Based on your answer to part a, calculate the Sharpe ratio of the small-cap plus cash portfolio. c. Compare the expected return of the small-cap plus cash portfolio with the expected return of the large-cap portfolio