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 rate of 4.8%. The probability distributions of the risky funds are as follows: Stock fund (S) Bond fund B Expected Return 18% 9% Standard Deviation 38% 32% The correlation between fund returns is 0.13. Required: (a) (b) Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund 0% to 100% in increments of 20%. What expected return and standard deviation does your graph show for the minimum variance portfolio? (7) Draw a tangent from the risk-free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal risky portfolio? (6) Calculate the reward-to-volatility (Sharpe) ratio of the best feasible capital allocation line (CAL). (6) (d) Suppose that your portfolio must yield an expected retum of 15% and be efficient, that is, it must lie on the best feasible CAL. (0) What is the standard deviation of your portfolio? () funds? What are the proportions invested in the T-bill fund and each of the two risky