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 rate of 4%. The probability distribution of the risky funds is as follows:
Expected Return Standard Deviation
Stock fund (S) 24 % 30 %
Bond fund (B) 12 19
The correlation between the fund returns is 0.13.
a. What is the Sharpe ratio of the best feasible CAL?
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