What is the sharpe ratio and cal line

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Reference no: EM131911916

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 sure rate of 5.5%.

The probability distributions of the risky funds are:

Stock fund (S) Expected Return 15% Standard Deviation 32%

Bond fund (B) Expected Return 9% Standard Deviation 23%

The correlation between the fund returns is .15.

A. What is the expected return and standard deviation for the following allocation of the two risky funds: Wb=.6 and Ws = .4? What is the Sharpe Ratio and CAL line.

B. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? What is the Sharpe Ratio and CAL line.

C. What is the expected return and standard deviation for the optimal portfolio of the two risky funds? What is the Sharpe Ratio and CAL line.

D. Draw the investment opportunity set and label each of the portfolios.

Reference no: EM131911916

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