You've just decided upon your capital allocation for the next year. You believe the expected return should be 10% and the standard deviation is 28%. The risk-free rate is 5%. As the market moves, you would like to raise the expected return, lower the standard deviation of your risky portfolio, and adjust the risk-free rate to 4%.

a)Will you increase or decrease your allocation in the risky portfolio given the same expected return?

b) When the risk-free rate increases from inflation, should investors reduce their allocation to the risky portfolio given the same expected return? Why? Please use the diagrams in your answer.