Assets Expected Return Standard Deviation

Stock fund E$($r$)=14\%$ Stdev$=26\%$

Bond fund E$($r$)=7\%$ Stedev $13\%$

The correlation coefficient between the returns of the stock fund and the bond fund is $0\mathrm{.}45.$

The return on the risk$-$free asset is $3\%.$

a$)$ Calculate the risk and returns of a portfolio using proportions of the stock fund and the

bond fund from $0$ to $100\%$ in increments of $25\%.$ Tabulate your results below.

Stock Fund Bond Fund Expected return Standard Deviation

$0\%100\%$

$25\%75\%$

$50\%50\%$

$75\%25\%$

$100\%0\%$

Calculate the weights of the two assets that form the optimal risky portfolio. Also

compute the expected return and standard deviation of the optimal risky portfolio.