Question: It is given to us that the expected return on the market portfolio is E( r M )=12%, and the standard deviation of the market

It is given to us that the expected return on the market portfolio is E(r_M)=12%, and the standard deviation of the market portfolio _M = 10%.

(Key-in your answers in decimal format and keep 4 decimal places to your answers.)

(a) Larry told you that by investing 70% his money in the market portfolio, and the rest in the risk-free asset, he can achieve an expected return of 9.9%, while being on the Capital Market Line (CML). What is the risk-free rate? What is the standard deviation of his portfolio? What is the price of risk?

Risk-free rate r_f:

Standard deviation of the portfolio:

Price of risk:

(b) Barb wants to achieve an expected return of 19% on the CML. What is the standard deviation of her portfolio? In what proportions should she invest in the market portfolio and the risk-free asset? (Keep 2 decimal places to your answers.)

Standard deviation of her portfolio:

Proportation in market portfolio:

Proportation in risk-free asset:

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