we know, in case of two risky assets, the solution for the weights of the optimal risky portfolio, P can be shown as follows:

R_f = 4.25%

A. what are the weights for Fund A and Fund B if ?

B. What are the expected return and Standard Deviation of the optimal risky portfolio P?

C. What is the Sharpe Ratio (Reward-to-Variability) of the CAL line that joins the risk-free asset and optimal risky asset P?

D. If your risk aversion index A = 4, what is your optimal allocation between risky asset P ( ) and risk-free asset (1- )?

E.. What are expected rate of return and standard deviation of your complete portfolio that is constructed with risky asset P and risk-free asset?

The data is

State of the Economy	Probability	HPR (Fund A)	HPR (Fund B)
Boom	.50	7%	25%
Normal growth	.3	-5%	10%
Recession	.2	20%	-25%

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