1) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long -term government and corporate bond fund , and the third is a T- bill money market fund that yields a rate of 8 percent . The probability distribution of the risky funds is as follows : Expecte- Return Stan I ar I The correlation a) What are the investment proportions of the [minimum -variance portfolio of the two risky funds , and what is the expected value and standard deviation of its rate of return ? b) Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of zero to 100 percent in increments of 20 percent . c) Draw a tangent from the risk —free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal portfolio ? d) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio e) What is the reward -to -variability ratio of the best feasible CAL ? f) You require that your portfolio yield an expected return of 14 percent and be efficient on the best feasible CAL . a. What is the stande deviation of your portfolio ? b. What is the proportion invested in the T-bill fund and each of the two risky funds ? g) fyou were to use only the two risky funds and will require an expected return of 14 percent ,what must be the investment proportions of your portfolio ? Compare its standard deviation to that of the optimized portfolio in f). What do you conclude ? 2. Abigail Grace has a $900,000 fully diversified portfolio .She subsequently inherits ABC Company common stock worth $100,000 .Her financial advisor provided her with the following forecasted information

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