1. A pension fund manager is considering three mutual funds. The first is a long-term government and corporate bond fund, the second a stock fund, and the third is a T-bill money market fund that yields a rate of return of 6%. The correlation between the fund S and fund B returns is -0.46. The probability distribution of the risk funds is as follows: Expected return Standard deviation Stock fund (S) 13.2% 1.5% Bond fund (B) 7.7% 1.1%

1.1 Calculate the investment proportions of the two risky funds in the minimum-variance portfolio. (6)

1.2 Calculate the rate of return and the standard deviation of the rate of return of the minimum-variance portfolio. (6)

1.3 Determine the proportions of each asset of the optimal risky portfolio. (6)

1.4 Calculate the expected return and the standard deviation of the optimal risky portfolio.