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When the riskless rate is 4%, assume the optimal combination of risky assets produces a portfolio with an expected rate of return equal to 13%,
- When the riskless rate is 4%, assume the optimal combination of risky assets produces a portfolio with an expected rate of return equal to 13%, and a standard deviation of 10%.
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- Along the efficient tradeoff line, what is the value of the reward-to-risk ratio?
- Suppose you wish to tolerate only 1/5 of the risk present in the optimal risky portfolio. How must you allocate your investment between the risk-free asset and the optimal risky portfolio?
- Suppose your uncle wishes to bear 1.5 times the risk present in the optimal risky portfolio. How can he make this happen? In particular,
- What would be the weight of the risky and the riskless asset?
- What would be the standard deviation of your uncles portfolio?
- What would be the expected return of your uncles portfolio?
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