1.)You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index (passive portfolio), yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active portfolio with expected return 18% and standard deviation 28%. The risk-free rate is 8%.

Show to your client the maximum fee you could charge (as a percentage of the investment in your fund, deducted at the end of the year) that would leave him at least as well off investing in your fund as in the passive one.

(Hint: The fee will lower the slope of his CAL by reducing the expected return net of the fee.)

Please round your answer to the fourth decimal: 0.0000

2.)You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index (passive portfolio), yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active portfolio with expected return 18% and standard deviation 28%. The risk-free rate is 8%.

Consider that your client's degree of risk aversion (A) is equal to 3.5. If he chooses to form his complete portfolio by investing in the passive portfolio and risk free asset, what proportion, y*, would he select?

Please round your answer to the fourth decimal: 0.0000