If the risk-free interest rate is RF=5%, estimate the optimal risky portfolio for the investor when short sales are allowed. Compute its expected return and the standard deviation of its returns.

9. Mr Z can invest in two financial securities, security A and security B. The table below gives a description of the states of the world, their respective probabilities and the return of each security in each state. State Probability of state Return of security A Return of security B Market Conditions Bear Normal Bull 50% 20% 30% -10% 10% 30% 25% 36% -36%