Consider the following securities: Risky security: E(R) = 20% and = 20% Risk- free security: Rf = 10%. You want to construct a portfolio combining the risky security and the risk-free security such that you get an expected return of 15%.

(a) What weights would you need to put in the risky and the risk-free securities to earn a 15%

(b) What is the standard deviation of this portfolio?

(c) What is the reward-to-variability ratio?

(d) Draw the capital allocation line (CAL). Label the points and the axes clearly.