Question 2 Assume that you can invest in a stock fund (S) and in a bond fund (B). The correlation between stock and bond fund returns is 0.12. The characteristics of the risky funds are: E(rs) = 22%, E(TB) = 14%, Os = 28%, 08 = 14%, Psp = 0.12 a. b. c. Write the covariance matrix of returns. [10 marks] Find the investment proportions in the minimum-variance portfolio of the two risky funds. [12 marks] Find the expected value and the standard deviation of the minimum variance portfolio return. [16 marks] Now, assume that the risk free rate of return is 8%, and the Expected Rate of Return on the Optimal risky portfolio is E(rp) = 20%. If the Expected Rate of Return on the Optimal Complete Portfolio is E(rc) = 18%, what is the proportion of y to be invested in the optimal risky portfolio P and of (1-y) in the T-Bills? [12 marks] d