You wish to construct an investment portfolio with a 5% standard deviation. You are considering the following two investments:

• A Government of Canada of Canada zero-coupon bond (does not pay interest) which yields 3%?
• A S&P TSE index ETF with an expected return of 10% and a standard deviation of 15%.
• Assume there is no correlation between treasury bills and the stock market.

QUESTIONS:

1. What are the portfolio weights? Show all calculations.
2. What is the expected return on your portfolio? Show all calculations.
3. Do you feel there is zero correlation between Government of Canada bonds i.e. bonds and the S&P TSE index i.e. the stock market? Elaborate.