Question: 1. Markowitz Portfolio Optimisation. [30 Marks] Lisa is considering two risky funds, the S&P 500 index fund and a corporate bond fund, plus Treasury bills

1. Markowitz Portfolio Optimisation. [30 Marks]

Lisa is considering two risky funds, the S&P 500 index fund and a corporate bond fund, plus Treasury bills (T-Bills). The information of the funds and T-bills are as follows:

Expected Return

Standard Deviation

S&P 500

16%

20%

Corporate Bond Fund

10%

15%

T-bills

6%

0

The correlation between the S&P 500 index fund and the corporate bond fund is 0.4.

  1. Calculate the investment weights in the minimum-variance portfolio of the two risky funds, the expected return and standard deviation of the minimumvariance portfolio.

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