# Question Overview

Jeremy has $10k USD to invest and would like to hear your suggestions. You have provided him a complete portfolio investment plan. The complete portfolio is composed by a risky portfolio with return of 10.5% and standard-deviation of 15%, and a risk-free asset with return equals to X% (X is the third-digital number of your student ID. Say you have a student ID of 278123A, and the risk-free rate of return is then 8%. If the third-digital number is 0, then rf is 0). After comparison between these two choices, Jeremy prefers the risk-free option.

a), Determine the minimum value of Jeremy’s risk-aversion factor. Keep 3 decimals in your answer

b), Using the minimum value of the risk-aversion factor you derived from 1) and the information from the question, calculate the optimal weighting for Risk-free and risky portfolio. Keep 3 decimals in your answer.

c), Using the weighting you derived from 2) and the information from the question, calculate Jeremy’s complete portfolio return and risk. Keep three decimals in your answer.

d), Peter would like to invest $10k USD and ask your suggestions. You have provided a risky portfolio with return of 12.5% and standard-deviation of 18%, and a risk-free asset with return equals to X% (X is the fourth-digital number of your student ID. Say you have a student ID of 278123A, and the risk-free rate of return is then 1%. If the third-digital number is 0, then rf is 0). After comparison between these two choices, Peter prefers the risk-free option

Repeat your calculations in 1) and 2), calculate the minimum value of Peter’s risk-aversion factor, and the optimal weighting between risk-free and risky portfolio. Any trend you have identified and why?

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