Problems 312 A pension fund manager is considering three mutual funds. The rst is a stock fund, the second is a long term government and corporate bond fund, and the third is a Tbill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund is] 15% 32% Bond fund [Bi 9% 23% The correlation between the fund returns is 0.15. 8. Ta buate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund and 0% to 100% in increments of 20%. What expected return and standard deviation does your graph show for the minim umvariance portfolio? 9. 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 risky portfolio? 10. What is the Sharpe ratio of the best feasible CAL? 11. Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of the portfolio? b. What is the proportion invested in the Tbill fund and each of the two risky funds