Portfolio Expected Return Standard Deviation Correlation Coefficient Covariance Stock 14% 25% S,B = 60% S,B = 0.0225 Bond 8% 15% Risk-free 3% 0% 1) Assume the optimal risky portfolio (ORP) has an expected return equal to 12.05%. What is the standard deviation for ORP? (4 points)

2) On your work to be turned in on Blackboard, please write down the function for the optimal capital allocation line. Also, draw the graph of this function. Be sure to label axes, indicate the slope of the function, and identify the risk-free asset and the ORP on the graph (along with their expected return and standard deviations). (4 points)

3) Assume your risk aversion factor, A, is equal to 3.40. How much would you invest in ORP and the risk-free asset to create your optimal complete portfolio? (report as a number rounded to 4 decimal places) (2 points)

WORP =

Wf =

4) What is the expected return and standard deviation of your optimal complete portfolio? (report as a number rounded to 4 decimal places) (2 points)

E(rc*) =

c* =

5) If you were to invest $100,000 in your optimal complete portfolio, how much would be invested in each of the stock portfolio, the bond portfolio, and the risk-free asset? (report as a whole dollar amount - do not use decimal places) (2 points)

Stock =

Bond =

risk-free =