a. Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 25%. The T-bill rate is 7%. Suppose that you have a client who prefers to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 15%.

(1) What is the investment proportion, y?

(2.) What is the standard deviation of the rate of return on your clients portfolio?

b. The expected rates of return for stocks A and B are 28% and 22% respectively. The T-bill rate is 12%. The standard deviation of stock A is 22% while that of B is 20%. If you could invest only in T-bills plus one of these stocks, which stock would you choose?