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 return is .15.

A.Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 20%.