b) 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 sure rate of 5.5%. You observe the following data: Average Return Standard Deviation 32% 23% Stock fund (S) 15% Bond fund (B) 9% The correlation between stock and bond fund returns is 0.15. (i) Tabulate and 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%. (15% weighting) (ii) Draw a tangent from the risk-free rate to the opportunity set. Through approximation, what does your graph show for the expected return and standard deviation of the optimal risky portfolio? What is the reward-to- variability ratio of the best feasible Capital Allocation Line (CAL)? (15% weighting) (iii) Suppose now that your portfolio must yield an expected return of 12% and be efficient that is, on the best feasible CAL. What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund and each of the two risky funds? 120g/ icbtial