Question: ??? Please show work and formulas thank you A risky portfolio RP with the following characteristics: E(r p ) = 12%; s p = 18%;

??? Please show work and formulas thank you

A risky portfolio RP with the following characteristics:

E(r_p) = 12%; s_p= 18%;

In addition, r_f = 4%

a)Your client asks you to construct a complete portfolio that will have an expected rate of return of 16%. Using only the risky portfolio and the risk free asset, what investments weights should portfolio P and the risk free asset have? What would the standard deviation of the portfolio be?

b)Suppose that this allocation maximizes your clients utility. Assuming a standard utility function, what is your clients level of risk aversion?

c)Draw a clearly labeled graph that shows the capital allocation line, the location of your clients portfolio, and an indifference curve showing your clients utility.

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