An investor constructs the following portfolio:

1. Determine the proportion that this investor has invested in asset Z in the overall portfolio (risky and risk-free assets). *

a. 15%

b. 9%

c. 18%

d. 49%

e. None of the above

2. Assume that the investors degree of risk aversion is A=2. What proportion, y, of the total investment should be invested in the risky assets? *

a. 21.69%

b. 15.91%

c. 72.31%

d. 47.72%

e. None of the above

3. What is the investors risk on the optimized portfolio? *

a. 15.91%

b. 3.5%

c. 4.77%

d. 10.5%

e. None of the above

X (55%) Risky (60%) Y (30%) Overall portfolio z (?) Risk-free (40%) T-Bills (100%) Note that the percentages between parentheses represent the weights. Assume that the expected return and risk on the overall portfolio are respectively equal to 14% and 22%. The risk-free rate is 7%