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You are an investment manager considering two mutual funds. The first is an equity fund...

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You are an investment manager considering two mutual funds. The first is an equity fund and the second is a long-term corporate bond fund. It is possible to borrow or to lend limitless sums safely at 1.25%pa. The data on the risky funds are as follows: Fund Expected return Expected standard deviation Equity Fund 8% 16% Bond Fund 3% 5% The correlation coefficient between the fund returns is 0.10 a You form a risky portfolio P that is equally weighted between the bond fund and the equity fund. Calculate the forecast expected return and the estimated risk of your portfolio. Show your working. (2 marks) b Draw the capital allocation line (CAL) of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show your working

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