1. Suppose 40% of your portfolio is allocated to Canadian equity market and 60% is allocated to T-bills. Your coefficient of risk-aversion is 3. The expected return for the Canadian equity market is 8.6%. The standard deviation of the Canadian equity market is 17% and the risk-free rate is 1.6%

a) What is the slope of the capital allocation line?

b) What is the expected return and the std of return of your current portfolio?

c) Compute the certainty equivalent rate of your current portfolio?

d) You decide to rebalance your portfolio to optimize it. What would be the weights of your optimal complete portfolio?

e) What is the certainty equivalent rate of your

2. Suppose the following information is given:

	Bond Fund	Equity fund
Expected return	6%	10%
Standard deviation	11%	18%
Covariance	0.00576

The risk-free rate is 3.5%.

a) Compute the weights of debt and equity in the global minimum-variance portfolio of two risky funds?

b) Compute the weights of debt and equity in the optimal risky portfolio of two risky funds?

c) What are the expected return and standard deviation of the optimal risky portfolio.

d) Suppose A=4, what are the optimal allocations to risky portfolio P and the risk