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Rf=2%,E(RMkt)=8%,(RMkt)=20% A friend of yours is investing all of her wealth on what she believes to be a great portfolio. This portfolio, call it RALPHA,

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Rf=2%,E(RMkt)=8%,(RMkt)=20% A friend of yours is investing all of her wealth on what she believes to be a "great" portfolio. This portfolio, call it RALPHA, has the following characteristics: E(RALPHA)=4%,(RALPHA)=18%. Answer the following questions (Note: they can both be answered independently of each other). Question 8 Question 3a Convince your friend that her portfolio, RALPHA, is not that great. Show her that she can do better than this portfolio by proposing to her a better portfolio. In this question, you should find her a better portfolio using the market portfolio, RMK, and the riskfree asset, Rf, that has the same expected return as RALPUA(4%). What is the weight you will put on the market portfolio? (Round to 3 decimal places) Given the weight, what is the standard deviation (round to 2 decimal places)) of your portfolio? Note: if the solution is 20%, please enter 0.20 in the box and not 20. Now, lets find the optimal postfolio that your friend should actially be investing in- Suppose your friend bas preferences defined by the standard utility function: U=E(Ri)21AR42 In which E(Ri) and R, are, respectively, the expected return and the variasce of the returns of eccurity if and A is the investors wetlicient of risk avesion. Your frikuds' riak aversion is A=5. Find your fricuds' optimal portiolio (call it P2 ). For the auseer to be complete, you bevel to report the proportion that you should imest in each security to crate thik optimal portholio P2, and also the expected return and standard deviation of the returns of this optimal portfolio P. Question 10 2 pts Question 3b You know that A is 5. You have convinced your friend in Q3a to invest in the risk-free asset and in the market onntfolio. Question 3b You know that A is 5. You have convinced your friend in Q3a to invest in the risk-free asset and in the market portfolio Calculate the fraction that your friend should invest in the market XMkt. (You can use the equation in the formula sheet posted here and just write down whatever you get and round it to 3 decimal places. Do not add % at the end of your answer) Question 11 2 pts Question 3b What is the expected return (in percentage, round to 2 decimal places)) of the optimal portfolio? Note: if the solution is 20%, please enter 0.20 in the box and not 20 . What is the standard deviation (round to 2 decimal places)) of the optimal portfolio? Note: if the solution is 20%, please enter 0.20 in the box and not 20

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