Suppose the Queens fund operates a portfolio with two risky assets; stock and bond. Annual expected return of stock is 15% and standard deviation of 10% and expected return of bond is 8% and standard deviation of 7%. The correlation- coefficient between stock and bond is 0.2 While T-bill has annual return of 3%.

1. Draw the opportunity set with a 25% increment in the bond fund. Also indicate the variance minimizing weight for bond and stock.

2. Draw the optimal CAL line and calculate the Sharp ratio .

3. If the investor requires the complete portfolio standard deviation of 5%, how much of his fund to be invested in the risky portfolio ( in terms of proportion, how big is y)?