A broad market index has an expected rate of return of 8% and a standard deviation of 40%. The T-bill rate is 1%. An investor has $10,000 to invest and wants a 10% expected rate of return.
(a) Assuming the index and T-bills are the only investments available, what do you recommend? (Your answer must include portfolio weights and state dollar investments.)
(b) What is the standard deviation of the rate of return on this investment?
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