Mutual Fund (Separation) TheoremYour uncle asks for investment advice. Currently he has $10,000 invested in Portfolio P,which has an expected return of 10.5% and a volatility of 8%. Suppose the riskfree rate is5%, and the tangent portfolio has an expected return of 18.5% and a volatility of 13%.

(a) To maximize his expected return without increasing his volatility, which portfolio wouldyou recommend?

(b) If your uncle prefers to keep his expected return the same but minimize his risk, whichportfolio would you recommend?

(c) Draw a graph with volatility on the x-axis and expected return on the y-axis. Sketchthe frontier and include the capital market line. Label the following: efficient frontier inefficient frontier minimum variance portfolio tangent portfolio riskfree rate your uncles portfolio (Portfolio P) portfolio in part (a) portfolio in part (b)

(d) Explain the Mutual Fund (Separation) Theorem.