Q1 The risk-free rate is 4% and the following data is given about assets X and Z:

Asset E(r)

X 10%. 20%

Z 18% 35%

(a) What are the Sharpe ratios of the two risky assets?

(b) Show how you can dominate asset X using a portfolio that combines asset Z and the risk-free asset.

(c) Show how you can dominate a portfolio with equal weights in asset X and the risk-free asset using a portfolio that combines asset Z and the risk-free asset.

(d) Show (in general) how you can dominate any portfolio combining asset X and the risk-free asset using a portfolio that combines asset Z and the risk-free asset.