A fund manager is considering two mutual funds. The first is a stock fund and the other is a bond fund. The correlation between the fund returns is 0.1. The expected returns and the standard deviations are as follows:

	Expected Return	SD
Stock Fund	20%	30%
Bond Fund	12%	15%

1. Calculate the expected return and standard deviation of the minimum-variance portfolio.

b. Calculate the expected return and standard deviation of portfolios invested in the two funds with weights as follows:

Wstocks Wbonds

100%	0%
80%	20%
60%	40%
40%	60%
20%	80%
0%	100%

3. Draw the investment opportunity set of the two risky funds and mark the minimum-variance portfolio (based on parts a and b).
4. If you were to use only the two risky funds, and still require an expected return of 14%. Calculate the investment proportions of your portfolio and the standard deviation of the portfolio (Hint: use the portfolios expected return to calculate the investment weights of each fund. Remember that w_Bonds = 1 w_Stocks . Then use the weights to calculate the standard deviation of the portfolio).