Q4(Total 05 Marks)

a. In the table below expected risk premium is calculated using risk free rate of 4%. (02 Marks)

i. Using CML, calculate Returns for all the Portfolios' with risk tolerance of 8 percent. After calculating each portfolio's return, select the most appropriate portfolio for investment in accordance with the principle of CML theory.

ii. How much of the funds should be invested in risk free asset in your final Portfolio selected above.

Portfolio

Expected Return

Standard Deviation

Expected risk premium/unit of risk

1

7%

5%

0.40

2

9

10

0.50

3

11

15

0.47

4

13

21

0.43