Your Client, Bo Regard, Holds a Complete Portfolio That Consists

Multiple Choice

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. $\begin{array}{lc} \text {E(Pp) } &12.00\%\\ \text { Standard Deviation of \( \mathrm{P} \) } &7.20\%\\ \text { T-Bill rate } &3.60\%\\\\ \text { Proportion of Complete Portfolio in P } &80\%\\ \text { Proportion of Complete Portfolio in T-Bills } &20\%\\\end{array}$

$\text { Composition of P: }$

$\begin{array}{cc} \text { Stock A} &40.00\%\\ \text { Stock B} &25.00\%&\\ \text { Stock C} &\underline{35.00\%}\\ \text { Total} &\underline{100.00\%}\\\end{array}$


What is the equation of Bo's capital allocation line?

A) E(r_C) = 7.2 + 3.6 × Standard Deviation of P
B) E(r_C) = 3.6 + 1.167 × Standard Deviation of P
C) E(r_C) = 3.6 + 12.0 × Standard Deviation of P
D) E(r_C) = 0.2 + 1.167 × Standard Deviation of P
E) E(r_C) = 3.6 + 0.857 × Standard Deviation of P