Consider that 2 investment funds exist. ABC Fund(invested in 50% normal stock and 50% risky bonds) and 123 Fund(invested in 25% High risk stock and 75% normal bonds) Assume you have the following historical data of annual returns: Normal Stock Risky Bonds High Risk Stock Normal Bonds Return 8% 10% 14% 696 S.D 20% 35% 40% 10% Find the optimal risky portfolio if you could only use these two funds; assume the two funds have a correlation coefficient of 0.3. (To do this use excel and create 101 different combination of the two funds, where allocation or "w" for fund ABC is 0, then.01, then .02 and so forth until w-1. For each of these points calculate the Sharpe ratio Graph these results with returns on the y axis and S.D on the x axis. Remember to report the return and standard deviation of the optimal risky portfolio.) The risk-free ate is.02. A. B. If the correlation coefficient was.4 would that lead to a better or a worse optimal risky C. For what risk level is the optimal risky portfolio the same as their optimal complete D. If someone has a 3 or a 5 level of risk aversion what is there optimal complete portfolio? portfolio? If another fund was added would this make things better or worse? portfolio? Why is the optimal risky portfolio optimal for everyone? Consider that 2 investment funds exist. ABC Fund(invested in 50% normal stock and 50% risky bonds) and 123 Fund(invested in 25% High risk stock and 75% normal bonds) Assume you have the following historical data of annual returns: Normal Stock Risky Bonds High Risk Stock Normal Bonds Return 8% 10% 14% 696 S.D 20% 35% 40% 10% Find the optimal risky portfolio if you could only use these two funds; assume the two funds have a correlation coefficient of 0.3. (To do this use excel and create 101 different combination of the two funds, where allocation or "w" for fund ABC is 0, then.01, then .02 and so forth until w-1. For each of these points calculate the Sharpe ratio Graph these results with returns on the y axis and S.D on the x axis. Remember to report the return and standard deviation of the optimal risky portfolio.) The risk-free ate is.02. A. B. If the correlation coefficient was.4 would that lead to a better or a worse optimal risky C. For what risk level is the optimal risky portfolio the same as their optimal complete D. If someone has a 3 or a 5 level of risk aversion what is there optimal complete portfolio? portfolio? If another fund was added would this make things better or worse? portfolio? Why is the optimal risky portfolio optimal for everyone