It is given that a firm faces a variance on equity investment of 625 and its expected return is 25%. The variance on debt equity on the other hand is 324 and the expected return on the debt is 15%...

It is given that a firm faces a variance on equity investment of 625 and its expected return is 25%. The variance on debt equity on the other hand is 324 and the expected return on the debt is 15% while the risk-free rate of return is 8% and the firm’s risk aversion coefficient A= 8. Evaluate:

a) The expected return on the firm’s portfolio composed of the debt and equity securities given above;

b) The variance of the firm’s portfolio given that 55% of its resources is spent on equity and 45% on debt equity;

c) The proportions of the company’s resources that are allocated to the risky and risk-free portfolios;

d) The expected return and standard deviation of the firm’s complete portfolio.