Question 7. (11 points) An investor can design a risky portfolio based on one stock fund (S) and one bond fund (B). The Stock fund has an expected return of 10% and a standard deviation of return of 20%. The bond fund has an expected return of 8% and a standard deviation of return of 15%. The correlation coefficient between the returns of two funds is-0.1. The return to risk-free T-bills is 5%. (1) Suppose the optimal portfolio invests 40% in (S) and 60% in (B). What is the sharpe-ratio of this portfolio? (4 pts) (2) An investor wants to achieve a total return of 14%. Can this be done? If so, what is the best way to do it? (What are the weights in T-bills, Stocks, and Bonds). (3pts) (3) Suppose all inputs are the same, but the correlation changes from negative to positive (say goes from -0.1 to 0.1). Will the slope of the optimal Capital Allocation line (increase, decrease, or stay the same). Explain briefly with words or a picture (either is fine). (4pts)