a Problem 4 There is a risk-free asset with return rf return us 7% and volatility os - 15%. 1% and a risky asset (stocks) with expected 1. What are expected return, volatility and Sharpe ratio of a portfolio with some fraction w invested in the risky asset and fraction 1 w invested in the risk-free asset? 2. Provide an expression for the Capital Allocation Line (CAL) (Mp as a function of op). Draw the CAL. 3. Suppose your preference is u(r) = E[r] Var[r]. What is the optimal portfolio? = 4. What are expected return, volatility, Sharpe ratio and utility of the optimal portfolio? 5. Draw the optimal portfolio and an indifference curve in the picture of (b). = 6. Suppose you can only lend at the risk free rate rf 1%, but if you borrow you have to pay interest ry = 4%. Draw a new CAL. What is now the optimal portfolio? Calculate expected return, volatility, Sharpe ratio and utility. Draw the new optimal portfolio and a new indifference curve. a Problem 4 There is a risk-free asset with return rf return us 7% and volatility os - 15%. 1% and a risky asset (stocks) with expected 1. What are expected return, volatility and Sharpe ratio of a portfolio with some fraction w invested in the risky asset and fraction 1 w invested in the risk-free asset? 2. Provide an expression for the Capital Allocation Line (CAL) (Mp as a function of op). Draw the CAL. 3. Suppose your preference is u(r) = E[r] Var[r]. What is the optimal portfolio? = 4. What are expected return, volatility, Sharpe ratio and utility of the optimal portfolio? 5. Draw the optimal portfolio and an indifference curve in the picture of (b). = 6. Suppose you can only lend at the risk free rate rf 1%, but if you borrow you have to pay interest ry = 4%. Draw a new CAL. What is now the optimal portfolio? Calculate expected return, volatility, Sharpe ratio and utility. Draw the new optimal portfolio and a new indifference curve