Question #6: Asset Allocation and Leverage (24 Points] Suppose that Kayla has a choice between two assets: Macerich Company (ticker symbol: MAC) (a risky asset) and treasury bills (a risk-free asset). Investment Standard Deviation (0) Portfolio Weight Expected Return [E(r)] 17.45% 20.20% MAC (Risky Asset) 1.1% 0 1-y 30 day T-bill (Risk-Free Asset) (a) Calculate the expected return and standard deviation of the overall portfolio---a portfolio consisting of a mixture of the risky asset and risk-free asset. (Hint: Your answers will be expressed as a function of y] [6 Points) (b) Suppose that the investor chooses a portfolio weight of y = 1.6. What does it mean that y> 1? [2 Points] (c) Find the expected return and standard deviation of the overall portfolio is the investor has chosen a weight of y = 1.3. [5 Points] (d) Plot and label the following investment scenarios to derive the CAL: Scenario #1: y = 0 (Point A) Scenario #2: y = 1 (Point B) Scenario #3: y = 1.6 (Point C) What is the slope of the CAL? Round your answer to 4 decimal places. [7 Points] (e) What does the price of risk (A) measure? What would happen to y (the proportion invested in risky assets) should A increase? Explain your answer. [4 Points] Question #6: Asset Allocation and Leverage (24 Points] Suppose that Kayla has a choice between two assets: Macerich Company (ticker symbol: MAC) (a risky asset) and treasury bills (a risk-free asset). Investment Standard Deviation (0) Portfolio Weight Expected Return [E(r)] 17.45% 20.20% MAC (Risky Asset) 1.1% 0 1-y 30 day T-bill (Risk-Free Asset) (a) Calculate the expected return and standard deviation of the overall portfolio---a portfolio consisting of a mixture of the risky asset and risk-free asset. (Hint: Your answers will be expressed as a function of y] [6 Points) (b) Suppose that the investor chooses a portfolio weight of y = 1.6. What does it mean that y> 1? [2 Points] (c) Find the expected return and standard deviation of the overall portfolio is the investor has chosen a weight of y = 1.3. [5 Points] (d) Plot and label the following investment scenarios to derive the CAL: Scenario #1: y = 0 (Point A) Scenario #2: y = 1 (Point B) Scenario #3: y = 1.6 (Point C) What is the slope of the CAL? Round your answer to 4 decimal places. [7 Points] (e) What does the price of risk (A) measure? What would happen to y (the proportion invested in risky assets) should A increase? Explain your answer. [4 Points]