Problem 1 (5 points): One of my retail clients just joined my investment securities firm and believes the only way to

invest is to form a complete portfolio following Tobin's separation theorem. My client believes the optimal portfolio

to be the S&P500 index. After performing a risk aversion profile, I determine that my client can tolerate a maximum

standard deviation of 22.70% in his portfolio. Given that the S&P500 index has an average return of 11% and

standard deviation of 18.59%, and that the 30-day T-bills have an average return of 2.8%, determine

(1)The weights (y) of the complete portfolio to satisfy my client's needs

(2)The client portfolio's expected return

Finance360 03 and 04 - Fall 2017

Exam #3

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