Question: Expected Return Standard Deviation Stock fund ( S ) 16% 34% Bond fund ( B ) 10% 25% Correlation 0.17 MM Fund 5.50% a) What

Expected Return

Standard Deviation

Stock fund (S)

16%

34%

Bond fund (B)

10%

25%

Correlation

0.17

MM Fund

5.50%

a) What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?

b) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio:

Portfolio invested in the stock %
Portfolio invested in the bond %
Expected return %
Standard deviation

%

c) What is the Sharpe ratio of the best feasible CAL?

d)

Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL.

Required: a. What is the standard deviation of your portfolio?

What is the proportion invested in the T-bill fund?

What is the proportion invested in each of the two risky funds

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