Consider the following information about a risky portfolio that you manage and risk-free asset: E (rp) = 12.5%, p=16%, rf=3.5%.

a) Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected return of on overall complete portfolio equal to 9%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset?

b) What will be the standard deviation of return of return on the total portfolio?

c) Consider the highest possible return subject to constraint that you limit her standard deviation to be no more than 12%. which portfolio is more appropriate if you were risk averse?