A pension fund manager is considering three mutual funds. The first is a stock fund (S) and the second is a long-term corporate bond fund (B). These two funds are uncorrelated. The third fund is a T-bill money-market fund that yields a rate of 9%. The probability distribution of the risky funds can be characterized as follows: If = 0,09 Expected Return Standard Deviation Stock Fund (S) 22% rs 32% Js Bond Fund (B) 13% 23% Tg 1. Find the proportions of each asset, and the expected return and standard deviation of the tangency portfolio. (5 marks) 2. What is the reward-to-variability (Sharpe) ratio of the best feasible capital allocation line (CAL)? (3 marks) 3. You require that your optimal portfolio yields an expected return of 15% and that it is on the best feasible CAL. ECR): 157 -0.15 3.1. What is the standard deviation of your portfolio? (5 marks) 3.2. What is the proportion invested in the T-bill fund and each of the two risky funds? (5 marks) 4. If you were to use only the two risky funds, and still require an expected return of 15%, what must be the investment proportions of your portfolio? Compare its standard deviation to that of the optimized portfolio in part 3. What do you conclude? (5 marks) 2 1858