Question: 1. [5 marks] Suppose that you have the following two opportunities from which to construct a portfolio: I} Risk-free asset earning 12% per year. ll]

1. [5 marks] Suppose that you have the following two opportunities from which to construct a portfolio: I} Risk-free asset earning 12% per year. ll] Risky asset with expected return of 30% per year and standard deviation of 40%. a] If you construct a portfolio with a standard deviation of 30%, what is the expected rate of return? [2] b] It is known that the market portfolio yields an expected return of 21% with standard deviation of 20%. Is the portfolio in (a) efcient? Why? [3]

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