C. 1. (24 points) Assume the capital asset pricing model assumptions are satisfied. The expected return on the market portfolio is 8%, the standard deviation of the market portfolio returns is 25%. The market risk-free rate is 2%. a. (4 points) Jack is willing to hold a portfolio with a standard deviation of up to 20%. What is the highest expected return Jack can obtain? What would be the beta of that portfolio? b. (4 points) Jill is willing to tolerate a standard deviation of up to 30%. What is the highest expected return Jill can obtain? What would be the beta of that portfolio? (5 points) Graph the CML and the SML of this economy. Denote the market portfolio and the risk-free asset on the plots (what are their betas?). Add Jack's and Jill's portfolios as described above to the plots. d. (4 points) Which investor (Jack or Jill) will achieve a higher Sharpe ratio? Which will achieve a higher Treynor ratio? (3 points) True/False? Jack is not willing to tolerate standard deviation higher than that of the market. Jill is willing to tolerate a higher volatility than that of the market returns. Therefore, Jack is risk averse and Jill is risk seeking. f. (4 points) Assume there are only 2 risky securities in the market portfolio: ABC and XYZ. A third investor, Joe, invests 50% of his portfolio in the risk-free asset, 20% in risky security ABC and 30% in risky security XYZ. Assuming Jill has $100,000 to invest, what is the dollar amount from Jill's portfolio (given in part b) invested in risky security ABC? e. C. 1. (24 points) Assume the capital asset pricing model assumptions are satisfied. The expected return on the market portfolio is 8%, the standard deviation of the market portfolio returns is 25%. The market risk-free rate is 2%. a. (4 points) Jack is willing to hold a portfolio with a standard deviation of up to 20%. What is the highest expected return Jack can obtain? What would be the beta of that portfolio? b. (4 points) Jill is willing to tolerate a standard deviation of up to 30%. What is the highest expected return Jill can obtain? What would be the beta of that portfolio? (5 points) Graph the CML and the SML of this economy. Denote the market portfolio and the risk-free asset on the plots (what are their betas?). Add Jack's and Jill's portfolios as described above to the plots. d. (4 points) Which investor (Jack or Jill) will achieve a higher Sharpe ratio? Which will achieve a higher Treynor ratio? (3 points) True/False? Jack is not willing to tolerate standard deviation higher than that of the market. Jill is willing to tolerate a higher volatility than that of the market returns. Therefore, Jack is risk averse and Jill is risk seeking. f. (4 points) Assume there are only 2 risky securities in the market portfolio: ABC and XYZ. A third investor, Joe, invests 50% of his portfolio in the risk-free asset, 20% in risky security ABC and 30% in risky security XYZ. Assuming Jill has $100,000 to invest, what is the dollar amount from Jill's portfolio (given in part b) invested in risky security ABC? e