Which of the following statements about the minimum-variance portfolio of all risky securities is valid? (Assume short sales are allowed.) Explain.

a. Its variance must be lower than those of all other securities or portfolios.

b. Its expected return can be lower than the risk-free rate.

c. It may be the optimal risky portfolio.

d. It must include all individual securities.

The following data apply to Problems 4 through 10: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows:

Expected Return Standard Deviation Stock fund (S) 20% 30%

Bond fund (B) 12 15 The correlation between the fund returns is .10. P-968