The optimal risky portfolio (P) provides expected return of 12% pa with 20% standard deviation. The risk free rate of return (r_f) is 3% pa. Based on this information Robert draws the following Capital Allocation Line (CAL) to identify his complete investment portfolio. Robert expects to earn 10.2% pa return from his investments.

1. Identify the labels for Axis X and Axis Y in the Chart above.
2. Among the portfolios represented by the points A, B, C and D on the graph - identify Roberts complete portfolio. Justify your answer.
3. Based on Roberts return expectation, what proportion of his wealth should be invested in the risk-free asset?

Capital Allocation Line (CAL) Axis Y? B Optimal Risky Portfolio 12% (P) R = 3% 6% 20% Axis X