An investor can design a risky portfolio based on two stocks, A and B. Use the following scenario:

State of the Economy	Probability	Stock A return	Stock B return
Boom	0.20	32%	-6%
Normal	0.50	18%	12%
Bust	0.30	-5%	5%

The t-bill rate of return is 4.25%.

a) The proportion of the optimal risky portfolio that should be invested in stock A & B is what?

b) The expected return on the optimal risky portfolio is what?

c) The Sharpe ratio of the optimal risky portfolio is what?

d) Investor wants to have an expected return of 7.5% for a complete portfolio. What proportion of his investment is in the complete portfolio (risk free, stock A and B)?

e) Investor wants the highest expected return with a complete portfolio that has a standard deviation equal to the minimum variance portfolio. What proportion of his investment is in the complete portfolio (risk free, stock A and B)?