Suppose you manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 20%. The T-bill rate is 2%. Also, suppose your risky portfolio includes the following assets in the given proportions: Stock A 10% Stock B 40% Stock C 20% Stock D 30% Suppose your client comes to you and asks you to help her create a portfolio with expected return of 20%.

1. What fraction (y) will she need to invest in your risky portfolio to obtain this expected return?

2. What are the investment proportions of the complete portfolio?yT bill = ? yA= ? yB = ? yC = ? yD = ?

3. Explain how you will allocate your assets based on the weights above ?

4. What is the standard deviation of the rate of return on your clients portfolio?P =

5. What is the Sharpe ratio of your clients portfolio?

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