Jack and Jill run a fund called JJ. The expected return of the JJ fund is 18% and standard deviation is 28%. The risk-free T-bill rate is 5%. JJ’s college classmates Austin Agressy (AA) and Connie Conservinia (CC), individually, decide to invest with JJ. AA wishes to earn an expected return of 20% while CC requires standard deviation to be 10%.
a. For AA, construct a portfolio (call it AA) that invests in the JJ Fund and T-bills. Find the proportion invested in JJ, the expected return and standard deviation of the AA portfolio.
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