Gustavo follows the CAPM advice, and combines the market portfolio with the risk-free asset to form his optimal personal portfolio Rxp. The market portfolio has an expected return and volatility of 12% and 20% respectively. The risk-free rate is 5%

If Gustavo wants to target a 15.5% expected return with his personal portfolio, he will have to invest ______ of his wealth in the market portfolio and ___________ at the risk-free rate.

Question 4 options:

A)	77.5%; borrow the shortfall.

B)	150%; invest the rest.

C)	77.5%; invest the rest.

D)	150%; borrow the shortfall.

2. If Gustavo invests 60% of his wealth in the market portfolio and 40% in the risk free rate, the volatility of his personal portfolio would be closest to:

Question 5 options:

A)

13.2%

B)

12.0%

C)

8.0%

D)

7.2%