Use the following information to answer Questions 7 to 11: You are a manager of a risky portfolio (consists of bonds and stocks) with an expected return E(rp) = 8% and standard deviation stdevp = 12%. The risk free rate rf = 2% and the standard deviation of the risk free asset is stdevf = 0% 7. Your client chooses to invest 40% in your portfolio (p) and 60% (f) in the risk-free asset. What is the expected return?

8. Your client chooses to invest 40% in your portfolio (p) and 60% (f) in the risk-free asset. What is the standard deviation of your clients portfolio?

9. Your client chooses to invest 40% in your portfolio (p) and 60% (f) in the risk-free asset. What is the Sharpe ratio of your clients portfolio?

10. Calculate the utility investors realize from investing 40% of their capital in your portfolio (p) and 60% (f) in the risk-free asset. Assume the following utility function: U = E(r) 1 A stdev2, where A 2 (clients risk aversion)=5.

11. Calculate the weight in the risky portfolio (p) that maximizes the utility of the client.