1.A pension fund manager is considering investing in 3 mutual funds: a stock fund, a long-term government and corporate bond fund and a treasury bill (T bill) money market fund. The T bill fund has an 8% safe return (r = .08). The following table presents the expected return and standard deviation of the stock fund and the bond fund: Stock fund Bond fund Expected return 20 12 Standard deviation .30 .15 The correlation between the stock fund and the bond fund is p = .10 (a) Find the mininimum variance portfolio. That is find the proportion invested in the stock fund, wMIN and the proportion invested in the bond fund, w IN =1- MINFind the expected return of the min variance portfolio, E (MIN) and its standard deviation, OMIN (b) Tabulate and draw the portfolio frontier of the 2 risky funds. Vary ws and we = 1 - ws in increments of.20. Complete the following table: WB E(Tp) Op .40 .60 .8 1.00 and draw the portfolio frontier on a graph with E(Tp) on the vertical axis and op on the horizontal axis. On that graph identify the minimum variance portfolio and the efficient portfolio frontier. (c) Draw the capital market line (CML). Identify the intercept with the vertical axis and the tangency point with the efficient portfolio frontier. 1.A pension fund manager is considering investing in 3 mutual funds: a stock fund, a long-term government and corporate bond fund and a treasury bill (T bill) money market fund. The T bill fund has an 8% safe return (r = .08). The following table presents the expected return and standard deviation of the stock fund and the bond fund: Stock fund Bond fund Expected return 20 12 Standard deviation .30 .15 The correlation between the stock fund and the bond fund is p = .10 (a) Find the mininimum variance portfolio. That is find the proportion invested in the stock fund, wMIN and the proportion invested in the bond fund, w IN =1- MINFind the expected return of the min variance portfolio, E (MIN) and its standard deviation, OMIN (b) Tabulate and draw the portfolio frontier of the 2 risky funds. Vary ws and we = 1 - ws in increments of.20. Complete the following table: WB E(Tp) Op .40 .60 .8 1.00 and draw the portfolio frontier on a graph with E(Tp) on the vertical axis and op on the horizontal axis. On that graph identify the minimum variance portfolio and the efficient portfolio frontier. (c) Draw the capital market line (CML). Identify the intercept with the vertical axis and the tangency point with the efficient portfolio frontier