1. Which of the above portfolios has the highest Sharpe ratio? (Must express in percentage)

2. Suppose an investor can lend/borrow at the riskfree rate. Assume the investor can tolerate at most 25% risk in any constructed portfolio. What is the best strategy for the investor? Must show work. Hint: You may want to treat this a problem in efficient frontier in the presence of a riskfree asset!

3. What is the maximum attainable expected return under the optimal strategy?

Please answer all THREE questions! Upvotes will be given for correct answers and work!

Q8-Consider the following combination of expected return and risk for various portfolios (named A-H) on the risk-return diagram. Assume a risk-free rate of 12% where one may borrow or lend at this rate. Expected Return (%) Risk (%) A B C D E F G H 10 12.5 15 16 17 18 18 20 23 21 25 29 29 32 35 45 Sharpe Ratio