The expected returns on a bond fund and a stock fund are E(TB) = 0.05 and...

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The expected returns on a bond fund and a stock fund are E(TB) = 0.05 and E(rs) = 0.08, respectively. The standard deviations are og = 0.10 and os = 0.20, respectively. The correlation between the two funds is PBS = 0.25. The risk free rate is r;= 0.02. (a) Suppose a portfolio P has equal weights on each fund, i.e. wg = 0.5 and ws=0.5. Compute the expected return, standard deviation, and Sharpe ratio of the portfolio. (b) Compute the weights on the optimal portfolio O. Compute the optimal portfolio's expected return, standard deviation, and Sharpe ratio. The expected returns on a bond fund and a stock fund are E(TB) = 0.05 and E(rs) = 0.08, respectively. The standard deviations are og = 0.10 and os = 0.20, respectively. The correlation between the two funds is PBS = 0.25. The risk free rate is r;= 0.02. (a) Suppose a portfolio P has equal weights on each fund, i.e. wg = 0.5 and ws=0.5. Compute the expected return, standard deviation, and Sharpe ratio of the portfolio. (b) Compute the weights on the optimal portfolio O. Compute the optimal portfolio's expected return, standard deviation, and Sharpe ratio.