You are an investor with a $5 million portfolio, 60% invested in S&P/TSX Composite index and 40% in the S&P 500 Composite index. Based on all your calculations you are forecasting a return of 18% for the S&P 500 index, and 16% for the S&P/TSX index. The standard deviation for the S&P 500 is 17.5% and 19.3% for the S&P/TSX. The covariance for between the two indices is 0.65%. All work must be shown.

1. (1 mark) What is the expected return of your portfolio?
2. (2 marks) What is the expected risk of your portfolio?
3. (2 marks) Explain why the risk of your portfolio (increases or decreases) if the covariance between the two indices was 0.55%?
4. (2 marks) If you are an investor with a risk aversion coefficient of 0.6, what is the utility of each of the investments?
5. (1 mark) What is the usefulness of the utility measure?
6. (2 marks) If you would like a portfolio return of 17.5%, what proportion should be invested in S&P/TSX Composite?