Consider the following investment portfolio with two stocks: Year End 2013 2014 2015 2016 2017 2018 Stock Pepper Realized Return 22.5% 75.2% -30.5% 59.2% 9.5% 19.5% Stock Mint Realized Return 14.6% - 4.3% -58.1% 71.1% 17.3% 1.2% a. Calculate the variance and standard deviation respectively for stock Pepper and stock Mint 10 marks b. Calculate the covariance between stock Pepper's and stock Mint's returns. 8 marks c. Calculate the correlation coefficient between stock Pepper's and stock Mint's returns. 4 marks d. Calculate the variance on a portfolio that is made up of equal investments in stock Pepper and stock Mint 4 marks Show all your calculations An investment fund manager is considering three mutual funds. Precisely, the STAR equity fund (E), the PINE long-term government and corporate bond fund (B), and the SAFE treasury bill (T-bill) money market fund that yields a rate of 5%. The probability distribution of the STAR equity fund (E) and PINE bond fund (B) is as follows: Expected Return % 24 11 Standard Deviation % 38 16 STAR equity fund (E) PINE bond fund(B) The correlation coefficient between the fund returns is 0.35 a. Find the investment proportions of the two risky funds, i.e. the STAR equity fund (E) and the PINE bond fund (B), in the minimum-variance portfolio. 4 marks b. Calculate the expected rate of return and standard deviation of the minimum variance portfolio. 6 marks C. Tabulate and sketch the investment opportunity set of the two risky funds, i.e. the STAR equity fund (E) and the PINE bond fund (B). Use investment proportions for the STAR equity fund (E) of zero to 100% in increments of 20%. Draw a tangent from the risk-free rate to the opportunity set. 9 marks e. Calculate the proportions of each asset, and the expected return and standard deviation of the optimal risky portfolio. 7 marks f. What is the Sharpe ratio of the best feasible CAL? Show all your calculations. 3 marks Consider the following covariances between stocks: Grand Hotel and Home Bakery: Grand Hotel Home Bakery Grand Hotel 0.45 0.28 Home Bakery 0.28 0.32 Find the variance on a portfolio that is made up of a $90,000 investment in Grand Hotel and $60,000 investments in Home Bakery. Show all your calculations