Problem:
The risk-free rate of return in the market is 0.02. The tangency portfolio has an expected return of 0.15 and variance of 0.13:
Required:
Question 1: Draw a graph depicting the risk-free portfolio, the tangency portfolio, and the capital allocation line.
Question 2: What is the expected return and standard deviation of a portfolio split between the risk-free asset (30%) and the tangency portfolio (70%)?
Note: Please answer in proper manner and show all computations.