1) Recall the formula for an individuals allocation to the risky asset. For each of the following scenarios, state whether the optimal adjustment to the risky asset would be to increase, decrease, or remain the same. Calculate the exact change in the risky allocation.

a) The individuals risk aversion increases by a factor of 1.5?

b) The volatility of the portfolio decreases by 20%?

c) The risk-free rate falls by 5% and risk aversion increases by 5%?

d) The market risk premium increases by 100% and the volatility rises by 80%?

e) The return on the market doubles and risk aversion decreases by 10%