Suppose that you have the following two opportunities from which to construct

a portfolio:

I) Risk-free asset earning 12% per year.

II) Risky asset with expected return of 30% per year and standard deviation of 40%.

a) If you construct a portfolio with a standard deviation of 30%, what is the expected rate of return? [2]

b) It is known that the market portfolio yields an expected return of 21% with standard deviation of 20%. Is the portfolio in (a) efficient? Why? [3]