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The following table presents the performance of stock and bond funds under various scenarios.

1. Calculate the expected returns, standard deviations, correlation coefficient of the stock and bond funds.

2. Suppose an investor forms a portfolio with stocks and bonds. Find the investment opportunity set in differing proportions.

3. Draw the investment opportunity set.

4. Calculate the weight in stock fund, expected return and standard deviation of the minimum-variance portfolio.

5. Given the T-bill rate is 2%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio.

6. Calculate the Sharpe ratio for the optimal risky portfolio.

7. Draw the capital allocation line (CAL) on the diagram in part (3). Show the position of the optimal risky portfolio on the CAL.

8. Suppose an investor chooses to invest 80% of his investment fund in the optimal risky portfolio and 20% in a risk-free asset. Calculate the expected return and standard deviation of his portfolio.

Scenario Probability | Rate of return of bond fund (%) -8 Severe recession Mild recession Normal growth Boom Rate of return of stock fund (%) -35 -10 15 0.10 0.20 0.50 0.20 30 Portfolio expected Portfolio standard deviation return Weights in stock fund 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Scenario Probability | Rate of return of bond fund (%) -8 Severe recession Mild recession Normal growth Boom Rate of return of stock fund (%) -35 -10 15 0.10 0.20 0.50 0.20 30 Portfolio expected Portfolio standard deviation return Weights in stock fund 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0