4.Assume you have only two assets available to invest. One is risk-free with an expected return of 3.2%. You can borrow or lend as much as you want at this rate. The other is a risky asset with an expected return of 11% and an expected standard deviation of 9.58%. You ARE able to form a portfolio with an expected standard deviation of 10%.

4 SECTION II: THE FIRST RULE OF FIN CLUB IS YOU DON’T ADD ACROSS TIME!Questions 5-7 (35 points total) 5.What is the effective annual rate on Tyler’s savings account? (5 points)6.Paulson advised Durden that to be totally safe, they require $100,000 in the savings account by the time the first Project Mayhem payment is due in five years. What constant dollar amount is the minimum Tyler needs to deposit each month into his savings account in order to have $100,000 in the savings account at that time? (10 points)

5 7.By his nature, Durden is distrustful and often prefers multiple opinions. Therefore, Durden is skeptical that $100,000 is the correct amount that needs to be in the savings account to fund Project Mayhem. What is your calculation of the minimumamount that needs to be in the savings account by the time the first Project Mayhem payment is made so that Tyler can completely pay for the Project? (note: you don’t want to make Tyler Durden mad by being wrong).(20 points)

6 SECTION III: ♫♫WHEN YOU SAY I STUDIED, I SAY YOU BETA –YOU BETA, YOU BETA, YOU BET♫♫ Questions 8-9 (40 points total)