Question: Item Expected Return Standard Deviation Fund 1 0.1 0.2 Fund 2 0.3 0.6 Treasury bill 0.05 Correlation coefficient between Fund 1 and Fund 2 is

Item Expected Return Standard Deviation
Fund 1 0.1 0.2
Fund 2 0.3 0.6
Treasury bill 0.05

Correlation coefficient between Fund 1 and Fund 2 is -0.2

1)What are the investment proportions of the two stock funds in the minimum variance portfolio?

2) Solve for the proportions of 1 and 2 and for the expected return and standard deviation of the optimal risky portfolio P.

3) Determine the formula for the CAL supported by Treasury bills and portfolio P (show the intercept and slope).

4) How much will an investor with A = 5 invest in funds 1 and 2 and the Treasury bills?

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