Question: Using the data in the table, answer the questions that follow. Asset Expected Return Standard Deviation Stock Fund S 18% 30% Bond Fund B 9%

Using the data in the table, answer the questions that follow.

Asset	Expected Return	Standard Deviation
Stock Fund S	18%	30%
Bond Fund B	9%	20%
T-Bills	5%	--

The correlation coefficient between the stock fund S and the bond fund b is 0.15.

A. Create a table of points on the investment opportunity set using the stock and bond funds. For portfolios with stock positions of 0%, 20%, 40%, 60%, 80% and 100% calculate the expected return, the standard deviation and the Sharpe ratio.

B. What are the approximate proportions stocks and bonds in the minimum variance portfolio?

C. What are the approximate proportion of stocks and bonds in the optimal risky portfolio? (Hint: this will be the portfolio with the highest Sharpe ratio)

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