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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long

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term government and corporate bond fund, and the third is a T

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bill money market fund that yields a sure rate of

$5$

$.$

$5$

$\%$

$.$

$$The probability distributions of the risky funds are:

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$$ Expected Return Standard Deviation

Stock fund

$($

S

$)$

$1$

$6$

$\%$

$3$

$2$

$\%$

Bond fund

$($

B

$)$

$1$

$0$

$\%$

$2$

$3$

$\%$

$$

The correlation between the fund returns is

$0$

$.$

$2$

$0$

$.$

Problem

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Algo

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Required:

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.Problem

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Algo

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Required:

What is the Sharpe ratio of the best feasible CAL?Problem

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Suppose now that your portfolio must yield an expected return of

$1$

$3$

$\%$

$$and be efficient, that is

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$$on the best feasible CAL.

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Required:

a

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$$What is the standard deviation of your portfolio?