Suppose you are a financial planner putting together a portfolio for a kind of risk-loving person who is 32 years old. You have two risky assets and one risk-free asset available for making portfolio choices

The annual historical returns, standard deviation and correlation of the risky assets are as below. For the risk-free asset consider annual returns of 0.025

Asset 1 Asset 2

Geomean: .12 .15

STDEV: .22 .27

Correlation between Asset 1 and 2= .65

Question 1. Draw (or graph) the EV-Frontier between the two risky assets.

Question 2. Considering that you have those two risky assets, which combination of those would you use to combine with the risk-free asset? Please indicate that combination and write a paragraph with a justification.

Question 3. After defining that combination, what proportion would you allocate between this combination of risky assets, and the risk-free asset? Why? (The proportion depends on the individual, so when making your choice explain the rationale for your choice).

Question 4. Finally, what assumptions are you relying on when making this recommendation?