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US Stock Index (Fund S) US Bond Index (Fund B) T-Bill Expected Return 20% 9% 1% Standard Deviation 22% 12% Variance 0.0484 0.0144 rS,B 0.40

US Stock Index (Fund S)

US Bond Index (Fund B)

T-Bill

Expected Return

20%

9%

1%

Standard Deviation

22%

12%

Variance

0.0484

0.0144

rS,B

0.40

Covariance (S,B)

0.01056

    1. Calculate the weights for stocks and bonds for the Optimal Risky Portfolio. Show your work.
    1. Calculate:
      1. the expected return for the Optimal Risky Portfolio;
      2. the standard deviation for the Optimal Risky Portfolio; and
      3. the ratio the Optimal Risky Portfolio maximizes (i.e., the ratio that makes it the optimal portfolio)

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