# A pension fund manager is considering three mutual funds. The first is a stock fund, thelong-term government and corporate bond fund, and the third is a T-billrate of 4.6%. The probability distribution of the twosecond is amoney market fund that yields arisky funds is as follows:ExpectedReturnStandard DeviationStock fund (SBond fund (B36%30%16%7%The correlation between the two fund returns is 0.16.Compute the proportions of stock fund and bond fund of the optimal risky portfolio, andcalculate the expected return and standard deviation of the optimal risky portfolio.Assume that short sales of mutual funds are allowed. (Do not round intermediatecalculations. Enter your answer as a percentage rounded to two decimal places.)Proportion invested in the stockfund%Proportion invested in the bondfund%Expected returnStandard deviation

Question
Step 1

Let the Stock Fund be Security A and Bond Fund be security B

Calculation of Covariance of security A,B:

Step 2

Calculation of Expected Return of the portfolio(A,B):

Step 3

Calculation of Weights of Stock Fund and bond fund:

Therefore the weight of security B be (1-x)i.e (1-(-0...

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