Assumptions for problems 4-10: A pension fund manager is considering three mutual funds. The fist 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 7: Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.

Problem 8: What is the Sharpe Ratio of the best feasible CAL?