Assume that you manage a risky portfolio with an expected rate of

return of 18% and a standard deviation of 28%. The T-bill rate (risk-free rate) is 7%. Your

client chooses to invest 70% in the risky portfolio in your fund and 30% in a T-bill money

market fund. We assume that investors use mean-variance utility: U = E(r)

0.5 A2,

where E(r) is the expected return, A is the risk aversion coeffiffifficient and 2 is the variance of

returns.

e) Your client's degree of risk aversion is A = 3.5.

(i) What proportion, y, of the total investment should be invested in your risky

fund? [2 marks]

(ii) What is the expected value and standard deviation of the rate of return on

your client's optimized portfolio?