1) You are financial adviser to 3 individuals, a Young person with high risk tolerance, a Middle aged person with medium risk tolerance and the old person with low risk tolerance. Here are the present conditions:
Risk free asset is earning= 12 % per year.
Risky asset (or market portfolio) has expected return of= 30% per year and standard deviation of 40%. By using mutual fund theorem or Separation theorem:
i) Create the suitable portfolio (Mix of risky asset and risk free asset) for your young client and evaluate expected return and standard deviation of your young client for coming year.
ii) Create an suitable portfolio for your middle aged client and evaluate expected return and standard deviation of your middle aged client.
iii) Create suitable portfolio for your old client and evaluate expected return and standard deviation of your old client.
iv) If your middle aged client needs the portfolio with standard deviation of= 30%, what is its expected rate of return?