Question: Expected Return Std. Deviation X 15% 50% M 10% 20% T-bills 5% 0% The correlation coefficient between X and M is 2 .2 a) Draw

Expected Return	Std. Deviation
X	15%	50%
M	10%	20%
T-bills	5%	0%

The correlation coefficient between X and M is 2 .2

a) Draw the opportunity set of securities X and M.

b) Find the optimal risky portfolio ( O ), its expected return, standard deviation, and Sharpe ratio. Compare with the Sharpe ratio of X and M.

c) Find the slope of the CAL generated by T-bills and portfolio O.

d) Suppose an investor places 2/9 (i.e., 22.22%) of the complete portfolio in the risky portfolio O and the remainder in T-bills. Calculate the composition of the complete portfolio, its expected return, SD, and Sharpe ratio.

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