Question 4 (20 points) You are advising several clients on asset allocation. You have just recommended the following optimal allocation to Client A: Assets Weights Small stocks 60% Large stocks 30% T-bills 10% Total 100% You believe that Client A's monthly return has a standard deviation of 4% and is expected to exceed the T-bill rate by 0.4% per month. You also believe that this portfolio offers the highest possible expected return for its level of standard deviation. Also, short selling and borrowing at T- bill rate are allowed. A) (10 points) Client B would like you to recommend a combination of the same three assets having the highest expected return for a monthly return standard deviation of 2%. What allocation would you recommend? (Write down the weights on Small stocks, Large stocks and T-bills that you would recommend; write down the weights in percent) B) (10 points) Client C would like you to recommend a combination of the same three assets that maximizes his/her objective function with a risk aversion coefficient of A = 10. What allocation would you recommend? (Write down the weights on Small stocks, Large stocks and T-bills that you would recommend; write down the weights in percent) Question 4 (20 points) You are advising several clients on asset allocation. You have just recommended the following optimal allocation to Client A: Assets Weights Small stocks 60% Large stocks 30% T-bills 10% Total 100% You believe that Client A's monthly return has a standard deviation of 4% and is expected to exceed the T-bill rate by 0.4% per month. You also believe that this portfolio offers the highest possible expected return for its level of standard deviation. Also, short selling and borrowing at T- bill rate are allowed. A) (10 points) Client B would like you to recommend a combination of the same three assets having the highest expected return for a monthly return standard deviation of 2%. What allocation would you recommend? (Write down the weights on Small stocks, Large stocks and T-bills that you would recommend; write down the weights in percent) B) (10 points) Client C would like you to recommend a combination of the same three assets that maximizes his/her objective function with a risk aversion coefficient of A = 10. What allocation would you recommend? (Write down the weights on Small stocks, Large stocks and T-bills that you would recommend; write down the weights in percent)