Question B1 A fund manager decides to construct a balanced portfolio with a 65% weight on the market index which is expected to generate a return of 20% with a standard deviation of 16%. The rest of the balanced portfolio will be invested in a bond which is expected to yield 8% with a standard deviation of 5%. The correlation between the two assets is 0.12. Answer the following: (a) Calculate the rate of return and the standard deviation of the portfolio. (5 marks) (b) Suppose that an ordinary investor wishes to invest part of her savings on the balanced portfolio in (a) and the remainder in a risk-free asset to generate an expected return of 12%. If the risk free rate is 8%, what should be the weights on the risk free asset and the balanced portfolio? (5 marks) (c) Calculate the risk associated with the investor's portfolio