Assumptions for problems 4-10: 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 8%. The probability distribution of risky funds is as follows:

Fund Expected Return Standard Deviation

Stock Fund (S) 20% 30%

Bond Fund (B) 12% 15%

The correlation between the two funds is 0.10.

Problem 4: What are in investment proportions in the minimum variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate of return?

Problem 5: Tabulate (no need to 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%.

Professor Cursio adds: The question wants you to fill this in

Proportion of S Proportion of B E[r_P] _P

0% _______ _______ _______

20% _______ _______ _______

40% _______ _______ _______

60% _______ _______ _______

80% _______ _______ _______

100% _______ _______ _______