R_f = 4.25%

A. What is the Sharpe Ratio (Reward-to-Variability) of the CAL line that joins the risk-free asset and optimal risky asset P?

B. If your risk aversion index A = 4, what is your optimal allocation between risky asset P ( ) and risk-free asset (1- )?

C. What are expected rate of return and standard deviation of your complete portfolio that is constructed with risky asset P and risk-free asset?

Data:

State of the Economy	Probability	HPR (Fund A)	HPR (Fund B)
Boom	.50	7%	25%
Normal growth	.3	-5%	10%
Recession	.2	20%	-25%

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