You choose to set up an investment portfolio. There are only two assets you can invest in: A United States government 3-month T-bill with a certain return of 2.5% per year, and the index of the S&P 500 (SPY). SPY has the following properties: E(r) = 7%, volatility = 16%.

If you construct your complete portfolio by investing 60% in SPY and 40% in the T-bill, what is the expected return of your complete portfolio?

What is the volatility of your complete portfolio?

You are considering an alternate setup of 80% in SPY and 20% in the T-bill. Which setup has a higher Sharpe ratio?