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 8.7 % 11.5 % R 11.0 13.2 S 4.7 5.8 T 13.0 18.9 U 6.0 6.1 For each portfolio, calculate the risk premium per unit of risk that you expect to receive ([E(R) - RFR]/). Assume that the risk-free rate is 2.0 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- (Q: R: S: T: U) has the -Select- (HIGHEST OR LOWEST) 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-

If you are only willing to make an investment with = 8.9%, is it possible for you to earn a return of 8.9 percent? Do not round intermediate calculations. Round your answer to one decimal place.

Expected portfolio return: %

It -Select- (IS OR IS NOT) 11 possible to earn an expected return of 8.9% with a portfolio whose standard deviation is 8.9%.

What is the minimum level of risk that would be necessary for an investment to earn 8.9 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.

w_MKT:

w_{risk-free asset}:

Suppose you are now willing to make an investment with = 18.7%. 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.

w_MKT:

w_{risk-free asset}:

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

%

The correct graph is -Select- . A. Capital market Line B. Capital market Line C. Capital market Line D. Capital market Line The correct graph is -Select- . A. Capital market Line B. Capital market Line C. Capital market Line D. Capital market Line