Suppose that there are two mutual funds available. Fund 1 has an expected return of 7% and the standard deviation (or volatility) of returns is 12%. Fund 2 has an expected return of 5% and the standard deviation (or volatility) of returns is 7%. In addition, there is a (risk-free) money-market fund with an expected return of 3%.

What is the Sharpe ratio of Fund 1? Decimal rounded to the nearest thousandth

What is the Sharpe ratio of Fund 2? Decimal rounded to the nearest thousandth

Suppose you are an investment manager with two clients, Lucy and Richard, who have different risk preferences. Lucy is more risk tolerant and would prefer to hold a portfolio with a return volatility of 15%. Richard, on the other hand, is more risk averse and would prefer to hold a portfolio with a return volatility of 8%. Suppose that you cannot invest in both of the mutual funds in a single client's portfolio (i.e., Fund 1 and Fund 2). However, you are free to choose either fund for each client (Lucy and Richard) and can mix it with the money-market fund in any proportions that you choose. Which of the two funds would you choose for Richard and why?

What expected return will Richard earn on a portfolio with his target risk, given the fund that you chose for him (i.e., Fund 1 or Fund 2)? Decimal rounded to the nearest thousandth

What weight should you put on whichever fund you chose (i.e., Fund 1 or Fund 2) in Richard's portfolio in order to achieve his risk target? Decimal rounded to the nearest hundredth