1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill 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 (S)	15	%	32	%
Bond fund (B)	9	%	23	%

The correlation between the fund returns is 0.15. What is the Sharpe ratio of the best feasible CAL?

Sharpe ratio=

2. The standard deviation of the market-index portfolio is 10%. Stock A has a beta of 2.50 and a residual standard deviation of 20%. a. Calculate the total variance for an increase of 0.10 in its beta. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

b. Calculate the total variance for an increase of 1.24% in its residual standard deviation. (Do not round intermediate calculations. Round your answer to the nearest whole number.)