You work for a family office in the Cayman Islands with a volatility targeting mandate. The portfolio that you manage must maintain an annual standard deviation of 10%. You are told that the market portfolio has an expected return of 7% and a standard deviation of 14%. The risk free rate is 1.5%.

1. What percentage of the market portfolio should you hold? (4 marks)
2. What is the Sharpe ratio of your portfolio? (2 marks)