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. $\begin{array}{lr}E\left(R_{p}\right) && 12.00 \% \\\text { Standard Deviation of } P && 7.20 \% \\\text { T-Bill rate } & &3.60 \%\\\\\text { Proportion of Complete Portfolio in P } & &80 \% \\\text { Proportion of Complete Portfolio in T-Bills } && 20 \% \\\\\text { Composition of P: } \\\text { Stock A } & 40.00 \% \\\text { Stock B } & 25.00 \% \\\text { Stock C } &\underline { 35.00 \% } \\\text { Total } & 100.00 \% \\\hline\end{array}$ What is the equation of Bo's capital allocation line?

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