1. Asset Allocation: (35) Your client is considering three assets: a US equity fund, a Foreign Equity fund and a T-bill money market fund. The T-bill fund is the risk-free asset. Information on the expected return and standard deviation is given below. The correlation between the US equity fund and the Foreign Equity fund returns is 0.2 (p=0.2). Other than the correlation, return and risk characteristics of the funds are similar to what we have in the homework. Risky Assets US Equity Fund (US) Foreign Equity Fund (FE) T-bill Fund Expected Return 10% 7% 3% Standard Deviation 15% 18% (d) If your client cannot borrow at the T-bill rate, but still want to achieve the 10% expected return in the complete portfolio, what asset allocation strategy would you recommend to your client? Explain. (5 points) 1. Asset Allocation: (35) Your client is considering three assets: a US equity fund, a Foreign Equity fund and a T-bill money market fund. The T-bill fund is the risk-free asset. Information on the expected return and standard deviation is given below. The correlation between the US equity fund and the Foreign Equity fund returns is 0.2 (p=0.2). Other than the correlation, return and risk characteristics of the funds are similar to what we have in the homework. Risky Assets US Equity Fund (US) Foreign Equity Fund (FE) T-bill Fund Expected Return 10% 7% 3% Standard Deviation 15% 18% (d) If your client cannot borrow at the T-bill rate, but still want to achieve the 10% expected return in the complete portfolio, what asset allocation strategy would you recommend to your client? Explain. (5 points)