You manage a risky portfolio with expected rate of return of 7% and standard deviation of 15%. The T-bill rate is 4%. (25 marks)

(1) Your client chooses to invest 50% of a portfolio in your fund and 50% in a T-hill money market fund. What is the expected value and standard deviation of the rate of return on his portfolio? (5 marks)

(2) Draw the CAL of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show the position of your client on your fund's CAL. (5 marks)