Question 1 (CAPM) Consider a pension fund investing in two geographical stock indices, America and Europe. America has an annual expected relum of 9% with a standard deviation of 20% and Europe an annual expected return of 8% with a standard deviation of 15%. Correlation coeffieient belween the returns of America and Europe is 80%. The fund decides to form its porifolio withan % weight in Americaland 60% weight ins Europe. Assuming that the porifolio's returns are correlated with the World index returns with a correlation coefficient of 70%, the World portfolio has an annual expected return of 8% with a standard deviation of 20%, and the risk-free rate is 3%, What is the fund's portfolio's expected: a) Variance (5 Marks) b) Beta with the world portfolio (5 Marks) c) Reward-to-variability (Sharpe's) ratio (5 Marks) d) Alpha relative to the World portfolio