There is a risk-free asset with the rate of return 0.1. The market has only one risky asset A, whose expected rate of return is 0.2 and standard deviation is 1. A risk-averse investor constructs a portfolio with h fraction of her funds on the risk-free asset. She chooses to short-sell the risky asset and buy more of the risk-free asset; that is, she

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sets h > 1. Is this investment strategy optimal? Why? [Hint: if a random variable X has variance V ar(X), then for any number a, V ar(aX) = a2V ar(X), no matter a is positive or negative.]