Ms. Wallock would like to invest in Palm World Equity Fund. The fund has an expected return of 21% and standard deviation of 25%. The rate of return of the U.S. Treasury Bills is 3%.

1. If Ms. Wallock expects 21% return from the fund, what is her risk aversion level?

1. 1.41
2. 2.82
3. 4.80
4. 5.76

2. Now Ms. Wallock decides to invest $500,000 in Palm World Equity Fund and another $500,000 in U.S. Treasury Bills. What is the expected return of Ms. Wallocks complete portfolio?

1. 10.50%
2. 12.00%
3. 18.00%
4. 21.00%

3. What is the standard deviation of Ms. Wallocks complete portfolio?

1. 0%
2. 9.00%
3. 12.50%
4. 25.00%

4. Which of the following statement(s) is(are) correct?

1. The higher a persons risk aversion level, the higher the rate of return the person would expect from an investment.
2. The risk aversion levels of Mr. A and Mr. B are 6 and 7 respectively. Therefore Mr. B is a more aggressive investor than Mr. A.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

5. What is the slope of the capital allocation line (CAL) of Palm World Equity Fund?

1. 0.60
2. 0.72
3. 0.84
4. 1.00