You are contacted by a high net wealth client who needs some advice in terms of their portfolio management. Their portfolio is comprised of 40% in the international property market (U.K and U.S.), 30% in local shares in the property and financial sectors in the UAE, and the remaining asset allocation is based on 3-month U.S. treasury bills, which is used as a proxy for risk-free assets. The portfolio has performed well since last year, with key companies like Emaar contributing to the performance of local stocks. International shares in the property market also witnessed a recovery globally due investors confidence coming back. The expected return of the the risky portfolio (which consists of all risky assets) is 20%, with a standard deviation of 10%. The risk-free rate has been averaging 0.05%.

(i) Explain what are the different types of risks involved in the portfolio? State clearly any assumption made. (3 marks)

(ii) If the client wants to invest 75% of their money into the risky portfolio, estimate his expected whole portfolio return and risk. (3 marks)

(iii) If the client requires a maximum risk of 8% on his portfolio, what is the expected Sharpe? Clearly show your workings (3 marks)

(iv) If another client is using the same risky assets as above, but decides to leverage his portfolio by 25%, would the Sharpe differ? Explain your answer. No calculation required. (3 marks)