You wish to build a portfolio where you hold one Risk$-$Free Asset and one portfolio of equities.

Risk$-$Free assets are expected to return $3\mathrm{.}4\%.$ You decide you want to optimize the equity portfolio.

You have a choice of two equity portfolios $-$ and you can only select one to pair up with the Risk$-$Free

asset.

a$.$ Equity Portfolio $1$: Expected return $=19\mathrm{.}4\%$; Standard Deviation $=26\mathrm{.}3\%$

b$.$ Equity Portfolio $2$: Expected return $=8\mathrm{.}3\%$;$,$ Standard Deviation $=15\mathrm{.}9\%$

Questions:

What is the Sharpe ratio of each of the two equity portfolios listed above?

Which equity portfolio would you choose and explain why?

Assume your risk tolerance is relatively high so you choose $80\%$ in $M^{*}$ and $20\%$ in the RF Asset.

Calculate the Expected Return and Standard Deviation of your selected combined portfolio.

What is Sharpe of your combined portfolio?

Explain your results in the context of what you learned in this section. Also, tell me why it's

better to invest in this combination, rather than just in some random combination of risk assets.