2. Consider a risky portfolio that offers an expected rate of return of 12% and a standard deviation of 20%. T-bills offer a risk-free 7% return. (1) What is the certainty equivalent rate of return of the risky portfolio? What is the risk premium of the risky portfolio? (2) What is the reward-to-volatility ratio (Sharpe ratio) of the risky portfolio? What's the meaning of the Sharpe ratio? (3) Suppose a security investor's utility function is U = E(r)-12A a. If A-2, would the investor choose the risky portfolio or the T-bills? b. If A-4, would the investor choose the risky portfolio or the T-bills? c. What is the maximum level of risk aversion for which the risky portfolio is still preferred to bills