Please show work

(35 points total)

Assets	Expected Return	Standard Deviation
Stock A	17%	23%
Stock B	23%	45%

A. The correlation coefficient between the returns of the stock fund and the bond fund is 0.35. The return on the risk-free asset is 2%.

B. Calculate the risk and returns of a portfolio using proportions of the stock and the fund from 0 to 100% in increments of 25%. Round to the second decimal (X.XX) and tabulate your results below. (1 pt each, 10 total)

Weight in Stock	Weight in Bond	Expected Return	Standard deviation
0	1
0.25	0.75
0.5	0.5
0.75	0.25
1	0

C. Calculate the weights of the two assets that form the minimum variance portfolio. Also, compute the expected return and standard deviation of the minimum variance portfolio (5pt)

D. Calculate the weights of the two assets that form the optimal risky portfolio. Also, compute the expected return and standard deviation of the optimal risky portfolio (5pt)

E. What is the highest attainable Sharpe ratio for the efficient frontier? (Hint: calculate the expected return and the standard deviation of the optimal risky fund). (5pt)

F. Use your results from parts a), b), c ), and d) to accurately draw the investment opportunity set of the two risky assets. Clearly label the Y and X axes. Find the minimum variance portfolio, the optimal risky portfolio, and the risk-free rate, and draw the efficient frontier. Also, draw the Capital Allocation Line (CAL) from part d) (5pt

G. Analysis: Why would a rational investor prefer the CAL in part e) over any other CAL? (5 pt)