Exercise 2 Problem: The correlation between the returns on the Russell Fund and the S&P Fund is 0.7. The rate on T-bills is 6%. Russell Fund Windsor Fund S&P Fund Expected Return 16% 14% 12% a) Wind Russell Fund b) Windsor Fund Standard Deviation Question: Which of the following portfolios would you prefer to hold in combination with T- bills and why? c) S&P Fund d) A portfolio of 60% Russell Fund and 40% S&P Fund. 12% 10% 8%

Problem: The correlation between the returns on the Russell Fund and the S\&P Fund is 0.7. The rate on T-bills is 6%. Question: Which of the following portfolios would you prefer to hold in combination with Tbills and why? a) WindRussell Fund b) Windsor Fund c) S\&P Fund d) A portfolio of 60% Russell Fund and 40% S\&P Fund