You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets:

Portfolio	Expected Return		Standard Deviation
Q	8.5	%	11.1	%
R	9.8		13.9
S	4.5		5.4
T	12.3		16.5
U	7.0		8.5

1. For each portfolio, calculate the risk premium per unit of risk that you expect to receive ([E(R) - RFR]/). Assume that the risk-free rate is 2.0 percent. Round your answers to four decimal places.

   Q:

   R:

   S:

   T:

   U:

2. If you are only willing to make an investment with = 6.9%, is it possible for you to earn a return of 6.9 percent? Do not round intermediate calculations. Round your answer to one decimal place.

   Expected portfolio return: %

   It -Select-isis notItem 11 possible to earn an expected return of 6.9% with a portfolio whose standard deviation is 6.9%.

3. What is the minimum level of risk that would be necessary for an investment to earn 6.9 percent? Do not round intermediate calculations. Round your answer to one decimal place.

   %

   What is the composition of the portfolio along the CML that will generate that expected return? Round your answers to four decimal places.

   w_MKT:

   w_{risk-free asset}:

4. Suppose you are now willing to make an investment with = 17.8%. What would be the investment proportions in the riskless asset and the market portfolio for this portfolio? Use a minus sign to enter negative values, if any. Round your answers to four decimal places.

   w_MKT:

   w_{risk-free asset}:

   What is the expected return for this portfolio? Round your answer to one decimal place.

   %

Solve in Excel