Problem $6-10$

You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well$-$diversified portfolios of risky assets:

Portfolio Expected Return Standard Deviation

Q $7\mathrm{.}8\%11\mathrm{.}4\%$

R $11\mathrm{.}013\mathrm{.}5$

S $4\mathrm{.}94\mathrm{.}9$

T $11\mathrm{.}216\mathrm{.}9$

U $6\mathrm{.}36\mathrm{.}4$

For each portfolio, calculate the risk premium per unit of risk that you expect to receive $([$E$($R$)-$ RFR$]/\backslash$sigma $).$ Assume that the risk$-$free rate is $3\mathrm{.}0$ percent. Round your answers to four decimal places.

Q:

R:

S:

T:

U:

Using your computations in Part $($a$),$ explain which of these five portfolios is most likely to be the market portfolio. Round your answer to four decimal places.

Portfolio

$-$Select$-$

has the

$-$Select$-$

ratio of risk premium per unit of risk,

$,$ of these five portfolios so it is most likely the market portfolio.

Choose the correct CML graph.

The correct graph is

$-$Select$-$

$.$

A$.$

B$.$

C$.$

D$.$

If you are only willing to make an investment with $\backslash$sigma $=8\mathrm{.}6\%,$ is it possible for you to earn a return of $8\mathrm{.}6$ percent? Do not round intermediate calculations. Round your answer to one decimal place.

Expected portfolio return:

$\%$

It

$-$Select$-$

possible to earn an expected return of $8\mathrm{.}6\%$ with a portfolio whose standard deviation is $8\mathrm{.}6\%.$

What is the minimum level of risk that would be necessary for an investment to earn $8\mathrm{.}6$ percent? Do not round intermediate calculations. Round your answer to one decimal place.

$\%$

What is the composition of the portfolio along the CML that will generate that expected return? Round your answers to four decimal places.

wMKT:

wrisk$-$free asset:

Suppose you are now willing to make an investment with $\backslash$sigma $=18\mathrm{.}6\%.$ What would be the investment proportions in the riskless asset and the market portfolio for this portfolio? Use a minus sign to enter negative values, if any. Round your answers to four decimal places.

wMKT:

wrisk$-$free asset:

What is the expected return for this portfolio? Round your answer to one decimal place.

$\%$