Consider a risky asset, P, with the following expected returns and risk:

Asset	Expected Return	Standard Deviation
P	8.25%	13.6%

The T-bill rate is 2.70%.

a. Consider a risk averse investor with A=7. The investor has $750,000 to invest. For this investor, construct the optimal complete portfolio of the risky asset P and T-bills. How much should the investor allocate to the risky asset (round to the nearest $100)? How much to T-bills (round to the nearest $100)? What are the expected return and risk (standard deviation) of the optimal complete portfolio? Graph your results (capital allocation line and indifference curve).

b. Consider an investor with A= 5 and $750,000 to invest. How will that investors optimal complete portfolio allocation differ from the investor in part a.? How much should the investor allocate to the risky asset, P? How much to T-bills? What is the expected return and risk (standard deviation) of the optimal complete portfolio? Graph your results in the graph for part a.

c. Your cousin has $750,000 to invest. Your cousin would like you to allocate his wealth between risky asset P and T-bills to achieve an expected return of 7.25% and a standard deviation of 10%. What portfolio allocation will result in an expected return of 7.25%? What portfolio allocation will result in a standard deviation of 10%? Is your cousins desired allocation possible? Where does your cousins desired allocation lie relative to the capital allocation line?