Suppose you are a fund manager, managing an active fund with an expected return of $14\%$ and a standard deviation of $20\%.$ The risk$-$free rate is $2\%.$You are advising a risk averse client who has mean$-$variance preferences and would like to invest in a combination of the risk$-$free asset and your active fund. They currently have a passive portfolio with an expected return of $8\%$ and a standard deviation of $12\%.$ The sharpe ratios for the active fund and passive portfolio are $0\mathrm{.}6$ and $0\mathrm{.}5$ respectively. Attached is a chart that shows the capital allocation line and the positions of the portfolios. Using this information answer the question: Explain to your client the benefit of investing in your active fund instead of their passive portfolio. Be precise about the superior portfolio$($s$)$ you can offer. What portfolio

allocation $($i$.$e$.,$ what combination of your active fund and the risk$-$free asset$)$ would you recommend to your client? Explain to your client the benefit of investing in your active fund instead of their passive portfolio. Be precise about the superior portfolio$($s$)$ you can offer. What portfolio allocation $($i$.$e$.,$ what combination of your active fund and the risk$-$free asset$)$ would you recommend to your client? $($could you also see whether my capital allocation line is correct and if not how you would do it please$)$