Suppose Jim and John both have a 1-month investment horizon and access to two stockportfolios and 1-month T-bills. Jim only cares about the expected 1-month return on hisportfolio and the standard deviation of the 1-month return on his portfolio, and John onlycares about the expected 1-month return on his portfolio and the standard deviation of the1-month return on his portfolio. Jim is more risk averse than John. The two stockportfolios are a portfolio of value firms and the S&P 500 index.The return on 1-monthT-bills,Rf, is 0.39%, and the following data is available for the 1-month return on the portfolio of value firms, RValue, and the 1-month return on S&P 500 index,

RS&P:E[RValue] = 1.23%E

[RS&P] = 0.94%

[RValue] = 5.67%

[RS&P] = 4.38%

[RValue, RS&P] = 0.73

Jim now tells you that the risky-asset portfolio he chooses to hold in combination with 1-month T-bills has 71.463% invested in the value-stock portfolio and 28.537% in the S&P500 index.

D. What is the slope of the capital allocation line for:

1. The value-firm portfolio?

2. The S&P 500 index?

3. The portfolio that Jim chooses to hold?

4. The portfolio that John chooses to hold?

E. Jim tells you that he has invested 75% of his portfolio in 1-month T-bills.

1. What fraction of Jims portfolio is invested the value-stock portfolio?

2. What fraction of Jims portfolio is invested the S&P 500 index?

3. What, if anything, can be said about the fraction of Johns portfolio invested in 1-month T-bills