Solve the following questions and graph as requested. ALL your graph need to be linked to data (NO copy-paste of drawings) PROBLEM:

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are:

	Expected Return	Standard Deviation
Stock fund (S)	15%	32%
Bond fund (B)	9%	23%

The correlation between the fund returns is .15.

1 - Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 20%. What expected return and standard deviation does your graph show for the minimum-variance portfolio?

2 - Draw a tangent from the risk-free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal risky portfolio? HINTS.

a- From the standard deviations and the correlation coefficient given generate the covariance matrix between Bonds and Stocks

b.- Calculate the minimum-variance portfolio proportions

c.- Calculate the tangency portfolio (optimal portfolio proportions)

d.- May use Excel Data Table feature to construct data to tabulate and graph. For every set of data points (weight proportion) calculate Return, Std. Deviation and Sharpe Ratio (Include also as data points the data found in b and c).

e.- Use "scatter with smooth lines" type of graph (Excel) (hint: Std. Dvt. goes in the X-axis, and Return goes in the Y-axis).