Question: You decide to construct your own complete portfolio (C) with three assets: a stock fund (S), a bond fund (B), and the T-bill (risk-free). The

You decide to construct your own complete portfolio (C) with three assets: a stock fund (S), a bond fund (B), and the T-bill (risk-free). The T-bill currently earns 1%. Your portfolio optimization yields the following results:

1. The optimal risky portfolio (O) consists of 45% in S and 55% in B

2. The expected return on the optimal risky portfolio (O) is 9%

3. The standard deviation on the optimal risky portfolio (O) is 18.5%

You have a risk aversion (A) of 2.

(1 point) Find the proportion of the optimal risky portfolio (= y) in your complete portfolio (C).

(1 point) What is the expected return and standard deviation of your complete portfolio (C)?

(1 point) What is the overall asset allocation (= % of S, B, and T-bill) of your complete portfolio (C)?

(1 point) Consider a portfolio investing in 10% in S, 30% in B, and 60% in T-bill. Determine whether this portfolio and your complete portfolio (C) are on the same capital allocation line (CAL). Briefly explain why.

(Hint) This is mostly a conceptual question. Do not spend too much time if you cannot come up with an answer quickly. Note: You must show your calculation steps briefly and clearly.

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