Question #3: The Optimal Portfolio [25 Points] You are attempting to construct an optimal portfolio consisting of T-bills and a risky portfolio. The expected return on the risky portfolio is 19% and the standard deviation is 20.5%. The T-bill rate is 3.8%. (a) If you put 36% of your funds in T-bills and 64% in the risky portfolio, what is the expected return and standard deviation of your overall portfolio? [5 Points] (6) Construct a Capital Allocation Line for a portfolio consisting of the T-bills and the risky portfolio. Draw the line and indicate the y-intercept and the point where the portfolio is entirely made up of risky assets. What is the slope of this line? (5 Points] (c) Suppose that you have a degree of risk aversion of A = 5.8. What is the optimal portfolio for this investor? In other words, what is the optimal weight (y) in the risky portfolio and what is the optimal weight (1-y) in T-bills? [5 Points] (d) What is the expected return and standard deviation on your optimal portfolio? Illustrate this point on your CAL graph you drew in Part (b). [5 Points) (e) Now suppose Maria has a degree of risk aversion of A = 4.1. What is the optimal weight (y) in the risky portfolio and what is the optimal weight (1-y) in T-bills for Maria? Briefly explain why Maria's optimal weight in the risky portfolio differs from yours? [5 Points]