# Question

Every investor in the capital asset pricing model owns a combination of the market portfolio and a riskless asset. Assume that the standard deviation of the market portfolio is 30% and that the expected return on the portfolio is 15%. What proportion of the following investor’s wealth would you suggest investing in the market portfolio and what proportion in the riskless asset?

(The riskless asset has an expected return of 5%)

a. An investor who desires a portfolio with no standard deviation.

b. An investor who desires a portfolio with a standard deviation of 15%.

c. An investor who desires a portfolio with a standard deviation of 30%.

d. An investor who desires a portfolio with a standard deviation of 45%.

e. An investor who desires a portfolio with an expected return of 12%.

(The riskless asset has an expected return of 5%)

a. An investor who desires a portfolio with no standard deviation.

b. An investor who desires a portfolio with a standard deviation of 15%.

c. An investor who desires a portfolio with a standard deviation of 30%.

d. An investor who desires a portfolio with a standard deviation of 45%.

e. An investor who desires a portfolio with an expected return of 12%.

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