A pension fund manager is oonsidering three mutual funds. The rst 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 4.0%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 10% 32% Bond fund (B) 7% 24% The correlation between the fund returns is .1250. What is the reward-to-volatility ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Reward-to-volatility ratio l Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8 % 55 % B 4 % 45 % Correlation = 1 a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.) Rate of return % b. Could the equilibrium rf be greater than 5.80%? h Yes No Investors expect the market rate of return this year to be 16.00%. The expected rate of return on a stock with a beta of 0.8 is currently 12.80%. If the market return this year turns out to be 14.00%, how would you revise your expectation of the rate of return on the stock? (Round your answer to 1 decimal place.) Revised rate of return % Consider the following table: Severe recession 0.10 -36% Mild recession 0.20 -12.0% Normal growth 0.35 12% Boom 0.35 32% a. Calculate the values of mean return and variance for the stock fund. (Do not round inlennediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 4 decimal places.) Mean return % Variance %Squared [1. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Covariance %Squared