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The average annual return of two mutual funds offered by BBA-Plus is: Average annual return 14.8% 4.6% Capital-boosting fund Bond fund An investor has

The average annual return of two mutual funds offered by BBA-Plus is: Average annual return 14.8% 4.6% Capital-boosting fund Bond fund An investor has $2,000,000 to invest in the two mutual funds and aims at diversifying the risk. Assuming that the average annual returns will be unchanged next year. 1. How should she invest (in each fund) if the target portfolio return is 8%. Notably, find the weights and the corresponding amounts for each fund. Explain carefully. 2. What happens if the targeted annual return is 5%? 10%? 14%? 3. Why are the results of questions 2 fully consistent? Explain.

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