ATTEND ONLY IF YOU CAN SOLVE ALL THE QUESTIONS TOGETHER. IF NOT I WILL REPORT YOUR ANSWER IF PARTLY ANSWERED.

Greta has risk aversion of A=3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S\&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S\&P 500 risk premium is estimated at 9% per year, with a standard deviation of 23% . The hedge fund risk premium is estimated at 11% with a standard deviation of 38% . The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S\&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. What should be Greta's capital allocation? (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 5%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 17% 30% Bond fund (B) 11% 22% The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.)