PLEASE ANSWER IN EXCEL/EXCEL FORMAT

A pension fund manager is considering three mutual funds. The first is a stock

fund, the second is a long-term government and corporate bond fund, and the

third is a T-bill money market fund that yields a rate of 8%. The probability

distribution of the risky funds is as follows:

The correlation between the fund returns is .10.

a. What are the investment proportions in the minimum-variance portfolio of the

two risky funds, and what is the expected value and standard deviation of

its rate of return?

(5 points)

b. Tabulate and draw the investment opportunity set of the two risky funds. Use

investment proportions for the stock fund of zero to 100% in increments of

20%.

(5 points)

c. Draw a tangent from the risk-free rate to the opportunity set. What does

your graph show for the expected return and standard deviation of the optimal

portfolio?

(5 points)

d. Solve numerically for the proportions of each asset and for the expected

return and standard deviation of the optimal risky portfolio.

(5 points)

e. What is the Sharpe ratio of the best feasible CAL?

(5 points)

f. You require that your portfolio yield an expected return of 14%, and that it

be efficient, on the best feasible CAL. What is the standard deviation of

your portfolio? What is the proportion invested in the T-bill fund and each

of the two risky funds?

(5 points)

g. If you were to use only the two risky funds, and still require an expected

return of 14%, what would be the investment proportions of your portfolio? Compare its standard

deviation to that of the optimized portfolio in Problem f. What do you conclude?

(5 points)

eturn Standard Stock fund (S) Bond fund (B) 20% 30% 12% 15%