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  3. 2. suppose you are considering three mutual funds.

2. Suppose you are considering three mutual funds. The first is a stock fund,...

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2. Suppose you are considering three mutual funds. The first is a stock fund, the second is a corporate bond fund, and the third is a T-bill fund that yields a risk-free rate of 5%. The returns and risks of the risky funds are: Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 15% 10% The correlation between the fund returns is PsB = 25%. a. You invest 50% in the stock fund and 50% in the bond fund. What is your expected return and standard deviation on this risky portfolio? b. You invest 20% in the T-bill and 30% in the stock fund and 50% in the bond fund. What is your expected return and standard deviation? What is the Sharpe ratio of your portfolio? (Hint: When calculating standard deviation, first calculate the standard dev. of the risky portfolio that consists of bond fund and stock fund. Then, calculate the standard dev, of complete portfolio (that consists of the risky portfolio (with stock and bond funds) and risk- free asset))

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