Consider the following capital market: a risk-free asset yielding 2.00% per year and a mutual fund consisting of 80% stocks and 20% bonds. The expected return on stocks is 12.25% per year and the expected return on bonds is 3.25% per year. The standard deviation of stock returns is 33.00% and the standard deviation of bond returns 10.50%. The stock, bond and risk-free returns are all uncorrelated.

5. What is the optimal allocation to the risky mutual fund (the fund with exactly 27.75% standard deviation) for this investor?

6. What is the expected return on the complete portfolio?

7. What is the standard deviation of the complete portfolio?

8. What is the Sharpe ratio of the complete portfolio?