1.

Statistic	Security 1	Security 2
Mean	20%	8%
Std. dev.	36%	12%
AB	-0.23

a. The tangency portfolio weight for Security 1 is 25% and the weight for Security 2 is 75%. The minimum variance portfolio weights are 15% and 85%, respectively for Security 1 and Security 2. The T-bill return is 2% and has a 0% standard deviation. Using the above statistics, what is the standard deviation of a portfolio with 50% invested in the best portfolio of risky assets and 50% invested in the T-bill? Enter your answer as a percent expression rounded to 2 decimal places.

b. The tangency portfolio weight for Security 1 is 25% and the weight for Security 2 is 75%. The minimum variance portfolio weights are 15% and 85%, respectively for Security 1 and Security 2. The T-bill return is 2%. Using the above statistics, what is the highest Sharpe ratio that an investor may obtain from these two assets? Enter your answer as a decimal expression rounded to 2 decimal places.

2. The best combination of risky assets is called the

a. Capital allocation portfolio

b. Sharpe portfolio

c. Tangency portfolio

d. Minimum variance portfolio

e. Best portfolio

3. The capital allocation line contains different combinations of the ----------- and -------------available to the investor

a. Sharpe ratio

b.minimum variance portfolio

c. riskless asset

d. investment opportunity set

e. tangency portfolio

f. risk preference