2)Assume you are managing a risky portfolio and following information is available. E(rp) = 12% , P = 15% , rf = 5%.

(a)A client of yours likes to invest in the risky portfolio so that expected rate of return on his overall or complete portfolio is 8% (includes risk-free asset also). What proportion he should invest in risky portfolio? (6 marks)

(b)What proportion he should invest in risk free asset? (4 marks)

(c)What is the standard deviation of his portfolio? (5 marks)

(d)Assume another client wants the maximum possible rate of return by bearing only 12% standard deviation. Which of these two clients is more risk-tolerant? (3 marks)

(e)If the standard deviation of market return is predicted to be 15% in the coming year, given a risk aversion of 3, what would be the expected market risk premium? (5 marks)

(f) What value of A is consistent with a risk premium of 10%? (2 marks)