Suppose the universe of available securities include only two risky stock funds, a and b, and T-bills with the following returns and risks. The correlation between fund a and fund b is 0.20 (i.e., ab=0.2 ). (1) If you invest in the two risky funds, what is the lowest level of portfolio volatility you can achieve? What about the expected return of this portfolio? (Hint: Compute the weights wa and wb for the global minimum-variance portfolio G; then use the weights to compute E(r) and for G.) (2) If you invest in the two risky funds, what is the best "reward-to-volatility ratio" you can achieve? (Hint: Compute the weights wa and wb for the optimal risky portfolio P; then use the weights to compute E(r) and , and finally the Sharpe ratio for P.) (3) If an investor has a utility function of U=E(r)21A2 with a risk aversion parameter of A =5, find out the expected return and volatility of his complete portfolio. (Hint: Use E(rP ) and P from part (2) to compute y; then use y to find E(rC) and C.) Suppose the universe of available securities include only two risky stock funds, a and b, and T-bills with the following returns and risks. The correlation between fund a and fund b is 0.20 (i.e., ab=0.2 ). (1) If you invest in the two risky funds, what is the lowest level of portfolio volatility you can achieve? What about the expected return of this portfolio? (Hint: Compute the weights wa and wb for the global minimum-variance portfolio G; then use the weights to compute E(r) and for G.) (2) If you invest in the two risky funds, what is the best "reward-to-volatility ratio" you can achieve? (Hint: Compute the weights wa and wb for the optimal risky portfolio P; then use the weights to compute E(r) and , and finally the Sharpe ratio for P.) (3) If an investor has a utility function of U=E(r)21A2 with a risk aversion parameter of A =5, find out the expected return and volatility of his complete portfolio. (Hint: Use E(rP ) and P from part (2) to compute y; then use y to find E(rC) and C.)