1. You want to achieve an expected annual return of 12% by investing in a risky fund that generates 20% per year and the rest of your budget in t-bill that generate 5% per year. What proportion of your budget should be invested in the risky fund?
A) 47% B) 50% C) 20% D) 28%
2. Assume the market risk premium is 16%. The standard deviation of the market return is 20%. What proportion of one’s budget should be invested in the market portfolio for an investor with a risk aversion of 8?
A) 100% B) 50% C) 20% D) 16%
Please be specific and show the formula an steps not just the answer