You are an investor with an investment horizon of one year and a certain degree of risk aversion. Your task is to determine the efficient frontier in the case of two risky securities and one risk-free (T-bill) security and select the optimal portfolio depending on your risk-aversion parameter. Do work in excel.

The following steps will help you accomplish this task:

1- Choose

• A well-diversified risky bond B represented by its E(R_B) and STD_B.
• A well-diversified stock fund S represented by its E(R_S) and STD_S.
• A T-bill with one-year maturity represented by R_F.

2- Choose a correlation coefficient between B and S.

3- Make simulations on STD and E(R) of a "complete" portfolio (formed with B and S) by varying the weights allocated on B and S.

4- Construct and graph the opportunity set (feasible set) for B and S from your simulations.

5- Compute the weights of the tangent portfolio (T).

6- Compute the STD_T and E (R_T) of the tangent portfolio (T).

7- Add the T-bill to your portfolio and redo step 3.

8- Repeat step 4 with the T-bill rate.

9- Choose different risk aversion parameters and determine your optimal weights in T and F and for the implied optimal portfolio compute the E(R) and STD.

10- Write a summary of results