Use the information in problem 12, and assume your clients utility function is U = E(r) 1/2 A2.

1. What is his optimal allocation y, if his risk aversion, A, is 2, 5, or 10?

2. What if the expected return on your fund goes up to 20% (for A = 2)?

3. What if the return standard deviation of your fund goes up to 35% (for A = 2; expected return is still 17%)?

For Problems 12-16, assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. 12. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund, (LO 5-3 a. What is the expected return and standard deviation of your client's portfolio? b. Suppose your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 27% 22% 4096 What are the investment proportions of your client's overall portfolio, including the position in T-bills? c. What is the Sharpe ratio (S) of your risky portfolio and your client's overall portfolio? d. Draw the CAL of your portfolio on an expected return/standard deviation diagram What is the slope of the CAL? Show the position of your client on your fund's CAL