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problem: An investor is holding a portfolio containing a risk free asset & a risky asset.  The expected return on the portfolio is 10 percent, the risk-free rate is 3 percent, and the expected return on the risky asset is 17 percent.

[A]   If the standard deviation of the portfolio (σP) is 8 percent, determine the standard deviation of the risky asset?  Show your work.

[B]    Based on your calculations in part A., estimate the Sharpe ratio?  Interpret in words the meaning of the number you find.

[C]    What proportion of the portfolio is invested in the risky asset?

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