3. Using the returns for the Large-Cap Stock fund and the Bond fund, calculate portfolio returns and standard deviations for various asset weights in a two-asset portfolio using the following link:

http://www.zenwealth.com/BusinessFinanceOnline/RR/PortfolioCalculator.html .

The results show that a portfolio of both funds will have a standard deviation () equal to that of the bond fund alone but a higher return. What are the portfolio weights and expected return of this portfolio?

5. On the opportunity set there is a portfolio (the minimum variance portfolio) that has the lowest standard deviation (_p). What are the portfolio weights, the expected return, and the standard deviation (_p) of this portfolio?

(Hint: To calculate the weight of asset A in the minimum variance portfolio that contains two assets:

where Corr (R_AR_B) = Correlation between the returns on Asset A and Asset B in a two-asset portfolio.)

6. What asset allocation would you choose? Why? Explain your thinking carefully