For Problems 12–16, assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.
Suppose the same client as in the previous problem prefers to invest in your portfolio a proportion ( y ) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio’s standard deviation will not exceed 20%.
a. What is the investment proportion, y?
b. What is the expected rate of return on the overall portfolio?
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