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Q1) You have a portfolio of one risky asset and one risk-free asset. The risky asset has an expected return of 20% and a variance
Q1) You have a portfolio of one risky asset and one risk-free asset. The risky asset has an expected return of 20% and a variance of 16%. The T-bill rate (that is the risk-free rate) is 6%. Your client Mary is thinking of investing 75% of her portfolio in the risky asset and the remaining in a T-bill.
- If Mary wants to find a general equation for the expected return and risk of her portfolio what are the equations that you would suggest to her? (5 points)
- Based on your answer in part a, draw the Capital Allocation Line (CAL). (5 points)
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