Question A: (20 pts)

Assume your risky portfolio cosists of NYSE-indexed stocks ^NYA (mostly large caps) and NASDAQ-indexed stocks ^IXIC (mostly small & mid-caps).

To achieve the best return-to-risk trade-off, what shall be the investment proportion amount of ^NYA and ^IXIC, respectively, in the optimal risky portfolio?

What shall be the resulting reward-to-volatility (also named reward-to-risk) Sharpe ratio amount for your optinal risky portfolio?

Question B: (4 pts)

Use test calculations to double-check: Does your design of "optimal risky portfolio" have the greatest return-to-risk trade-off indeed, among various risky portfolio design choices?

Question C: (6 pts)

Your complete investment portfolio consists of not only optimal risky portfolio (^NYA & ^IXIC), but also risk-free T-bill ^IRX.

Your investment goal is to achieve a long-term expected return of 16% per year.

How shall you divide your complete capital proportionally into ^NYA, ^IXIC and ^IRX?

What shall be the resulting reward-to-volatility Sharpe ratio amount for your complete investment portfolio?