1. You manage a risky portfolio with expected rate of return of 12% and a standard deviation of 25%. The T-bill rate is 3%.

A client chooses to invest 75% of her wealth in your portfolio and 25% in the T-bill money market fund. What is the reward-to-variability (Sharpe) ratio (S) of your client's overall portfolio?

A. 0.36 B. 0.32 C. 0.44 D. 0.42

2. You manage a risky portfolio with expected rate of return of 15% and a standard deviation of 32%. The T-bill rate is 4%.

You've determined that your client has a risk aversion of 2. What proportion of her investment should be allocated to your risky portfolio?

A. 24.14% B. 38.92% C. 52.71% D. 62.50%