Please do A & B

3. (7 points) Investment Horizons is an investment fund which manages the endowment of Cardiff Uni- versity. The money is invested in two pools. Short-term pool consists of short-term US government notes and T-bills. Long-term pool consists of the US and foreign equity. Currently, the long-term pool portfolio of Investment Horizons consists of 20% foreign equity and 80% US equity. Correlation coef- ficient between the US and foreign equity is 0.65 and the mean returns along with standard deviations are given in Table 1 below Table 1 Asset Mean return (%) St. deviation (%) Short-term Pool 3.25 US equity 11.25 15.5 Foreign equity 13.3 20.25 (a) Cardiff University wants to achieve expected return of 9.5% on its endowment. Which proportion of the endowment will be invested in the current long-term pool portfolio and what will be the standard deviation of Cardiff University portfolio? Explain and show your calculations!(2 points) (b) Is current long-term pool portfolio mean-variance efficient? If not, what should the composition of the optimal portfolio be and what is the Sharpe ratio of the optimal portfolio? Explain and show your calculations! (5 points)