Given the information of two risky funds below:

Expected return Standard deviation

Stock fund S. 12% 32%

Bond fund B. 8%. 20%

Their correlation is -0.2.

a. Draw the efficient frontier of the two risky funds using the investment proportions for the stock fund from 0 to 100% in increments of 10%. Describe or highlight the efficient part.

b. Given the riskless rate is 2%, draw the capital allocation line.

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