You are working as a fund manager and have created a number of risky portfolios (A-E) with the characteristics listed below. Assume you can borrow and lend at the risk free rate of 2%.

A

B

C

D

E

Expected return (%)

10

10

18

19

24

Standard deviation (%)

20

25

18

22

30

1.Assuming you do not have access to borrowing/lending, what is the maximum expected return that you may suggest to your client, assuming they can handle 22% of risk as measured by standard deviation?

a.10%

b.18%

c.19%

d.24%

2.Assuming you do have access to borrowing/lending, what is the maximum expected return that you may suggest to your client, assuming they can handle 22% of risk as measured by standard deviation?

a.21.56%

b.18.50%

c.22.87%

d.19.90%

3.Assuming you do have access to borrowing/lending, and if your client wishes to achieve 24% return, how much risk must they take on to get that return?

a.18.50%

b.24.00%

c.24.75%

d.30.00%