Question: 2. The expected returns on a bond fund and a stock fund are EU'B) = 0.05 and E(r5) = 0.08. respectively. The standard deviations are

2. The expected returns on a bond fund and a stock fund are EU'B) = 0.05 and E(r5) = 0.08. respectively. The standard deviations are 03 = 0.10 and 03 = 0.20, respectively. The correlation between the two funds is p35 2 0.25. The risk free rate is r, = 0.02. (a) Suppose a portfolio P has equal weights on each fund, i.e. mg = 0.5 and \"LUS = 0.5. Compute the expected return, standard deviation, and Sharpe ratio of the portfolio. (b) Compute the weights on the optimal portfolio 0. Compute the optimal portfolio's expected returnj standard deviation. and Sharpe ratio

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