Question 1 (14 marks) Peter is considering the following two mutual funds. The correlation between the fund returns is 0.2. The T-bill rate is 2%. XX Bond fund YY Stock fund Expected return (%) 6 15 Standard deviation (%) 9 23 a. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks) b. Determine the Sharpe ratio for the optimal risky portfolio. (2 marks) Suppose Peter decides to invest in the optimal risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have expected return of 8%. c. i. What is the proportion y? (3 marks) What is the standard deviation of Peter's portfolio? (3 marks) ii. 4