Question 2 (20 marks) A pension fund manager is considering three mutual funds. The first is...

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Question 2 (20 marks) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 7%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 18% 35% Bond fund (B) 15% 20% The correlation between the fund returns is 0.12. a) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. b) What is the Sharpe ratio of the best feasible CAL? (8 marks) INVE5000 Portfolio Management Theory and Applications (2 marks) c) You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. i) What is the standard deviation of your portfolio? (3 marks) ii) What is the proportion invested in the money market fund and each of the two risky funds? (7 marks) Note: Do not round intermediate calculations. Round your final answer as a decimal rounded to 4 places. Question 2 (20 marks) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 7%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 18% 35% Bond fund (B) 15% 20% The correlation between the fund returns is 0.12. a) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. b) What is the Sharpe ratio of the best feasible CAL? (8 marks) INVE5000 Portfolio Management Theory and Applications (2 marks) c) You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. i) What is the standard deviation of your portfolio? (3 marks) ii) What is the proportion invested in the money market fund and each of the two risky funds? (7 marks) Note: Do not round intermediate calculations. Round your final answer as a decimal rounded to 4 places.