1) Referring to the Capital Market Line (CML) which of the following strategies has the highest exprected return and the highest risk for the investor?

a) Invest all of her or his funds in Rm

b)Invest in a portfolio of 50% in Rf and 50% in Rm

c)Invest 75% in Rm and 25% in Rf

d)Borrow at the riskless rate and invest his or her funds, plus the borrowed money in Rf

e)Invest all his or her funds in the riskless asset

f)Borrow at the riskless rate and invest his or her funds, plus the borrowed money in Rm

Which answer should I go for? and please explain why.

2)Given the following information calculate the standard deviation of returns of a portfolio that combines government bonds with the market portfolio.

Rm = .11

Rf = .05

Standard Deviation of market return = 0.11

Enter your answer as a decimal accurate to three decimal places.

Proportion invested in Rm = 0.4