You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Suppose that your risky portfolio includes the following investments in the given proportions:

-Stock A: 25%

-Stock B: 32%

-Stock C: 43%

1.Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 16%.What is the proportion y? a. What are your clients investment proportions in your three stocks and the T-bill fund?

b. What is the standard deviation of the rate of return on your clients portfolio?

2. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolios standard deviation will not exceed 18%. a. What is the investment proportion, y? b. What is the expected rate of return on the complete portfolio?

3. Your clients degree of risk aversion is A= 3.5. a. What proportion, y, of the total investment should be invested in your fund? b. What are the expected value and standard deviation of the rate of return on your clients optimized portfolio?