Your client has ?10,000,000 of cash available for investment. The expected return on your equity market fund is 25% per year with a standard deviation of 50%, that on your risky long-term corporate bond fund is 15% per year with a standard deviation of 20%, and you estimate the unconditional correlation between the annual returns of these two risky funds at 0.30. The annual rate of return on risk-free government bills 10%.Suppose you convince your client to include a commodity fund among her set of feasible investments. The commodity fund your company runs has an expected return of 9% per year, an annual standard deviation of 16%, and a return correlation of -0.30 with the equity fund and -0.10 with the bond fund. Compute the optimal weights assigned to each fund and determine the risk and return parameters of the resulting portfolio


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