EFFICIENT FRONTIER PROBLEMS

1.A. Assume forecasted expected annual return and standard deviation for the market portfolio equal 12% and 20%, respectively. Assume the risk-free rate equals 2%. Assume your client has a target return of 8% per year. Assume the market portfolio is allocated 60% to stocks and 40% to bonds. What is the appropriate stocks/bonds/cash allocation for your client?

1.B. Calculate the Sharpe ratio for the portfolio derived in part 1.A.