I am trying to decide between two different asset allocations in my portfolio. I estimate that the first allocation (call this 'Safe') has an expected return of 3% per year, and a standard deviation of 8% per year. The second allocation(call this 'Risky') has an expected return of 7% per year, and a standard deviation of 16% per year.

If a risk-free asset is available, with a risk-free rate of 0.5% per year, which asset should I choose (between 'Safe' or 'Risky') to combine with the risk-free asset to build a portfolio with the best trade-off of risk and return? c) If I decide a specific portfolio using the assets I chose in Part A and I'm comfortable with a standard deviation of return of 12%, What % of my investment would go into each asset? (Note: either Safe or Risky should be 0%) % Safe

%Risky

% risk free

d) What is the expected return of my portfolio? Explain.