QUESTION 2. [(a+b. + d = 6 + 4 + 6 = 16 Marks) +(c = REC'NS = 3 Marks)] a. You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client wishes to invest $150,000, comprising $90,000 of his portfolio in your equity fund and $60,000 in a risk-free T-bill money market fund. i. What is the expected return of your client's portfolio? ii. What is the standard deviation of your client's portfolio? b. Following an audit of your equity fund, you are advised that the above standard deviation of 14% is incorrect and it is really 16%. You advise your client of the correct figure and he states that he does not wish to take any more risk in his investment mix of your equity fund and the T- bill money market fund and that he would like to maintain the figure calculated in a.ii. above. To meet his wishes and maintain his overall investment of $150,000, what will be the new allocation of amounts (each correct to the nearer dollar) to be invested in each of the above funds? C. In the present economic and financial situation, and assuming current (2021) returns on market equity funds and T-bills (rather than those quoted above) how would you advise the client to invest $150,000 (you are not limited to equity funds or T-bill money market funds)? Explain fully, with reasons, and considering in general terms, investing for the next 5 years. d. Claude Constable has received a large inheritance and wishes to invest it at a continuously compounded rate of interest for one year. He has been quoted a rate of 3.5% per annum, but is not sure whether this is the continuously compounded rate or the effective annual rate. i. What will be the effective annual rate if 3.5% is a continuously compounded rate? ii. What will be the continuously compounded rate if 3.5% is the effective annual rate? [Additional Information: The exponential, e = 2.71828.]