Simon, a young investor, has a degree of risk aversion of A =3. He is considering two funds for investment: a mutual fund and a hedge fund. The mutual fund risk premium is estimated at 5% per year, with a standard deviation of 20%. The hedge fund risk premium is estimated at 10% per year with a standard deviation of 35%. The risk free rate is 2%.

Assuming the correlation between the annual returns of the two funds is zero, what would be the expected return and standard deviation of the optimal portfolio with the investment in the two funds? (4 marks)

b. Assuming the correlation between the annual returns of the two funds is zero, what would be the expected return of Simon's portfolio with the investment in the two funds? (3 marks)

c. If the correlation coefficient between the annual returns of the two funds is 30%, what is the covariance between the returns of the two funds?(2 marks)

d. If the correlation coefficient between the annual returns of the two funds is 30%, what is the expected return and standard deviation of the optimal portfolio with the investment in the two funds? (4 marks)

e. If the correlation coefficient between the annual returns of the two funds is 30%, what is the expected return of Simon's portfolio with the investments in the two funds? (3 marks)