The expected return and standard deviation of the optimal risky portfolio (ORP) is as follows:

o The ORP expected return = 10%

o The OPR expected standard variation = 20%

o The ORP is composed of only two risky assets.

- Equity Fund: 40%

- Bond Fund: 60%

o The risk-free rate = 1% - You can invest or borrow at the same risk-free rate.

(1) What is the Sharpe ratio of the ORP?

(2) Lets assume your personal required risk premium to variance is 3 and you have total $100 cash. How much of your $100 should be allocated to equity fund, bond fund and risk-free asset respectively according to the modern portfolio theory?

(3) You are holding your investment portfolio according to the above (2). Let's assume your risk aversion level (i.e. your personal required risk premium to variance) increases from 3 to 5. How is your asset allocation changed to equity, bond and cash respectively?