Suppose that you currently have $100,000 invested in a portfolio with an expected return of 20% and a volatility of 45%. The efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. The risk-free rate of interest is 3%.

Calculate the Sharpe ratio of your portfolio and the efficient portfolio. Explain briefly which portfolio offers the better risk-adjusted return.

You have just completed your first Finance course, and realize you can create an optimal portfolio. Using the information above, create a portfolio that still provides you with a return of 20%, but with a lower risk? What does this portfolio look like, and what would its standard deviation be?

You decide you are actually comfortable holding a portfolio with a volatility of 45%. Using the information above, create a portfolio that still provides you with a standard deviation of 45% but with a higher expected return? What does this portfolio look like, and what would its expected return be?