A pension fund manager is con- sidering three mutual funds. The first is a stock fund, the second is a long-term govern- ment and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows:

Expected Return

Stock fund (S) 20% Bond fund (B) 12

The correlation between the fund returns is .10.

Standard Deviation

30% 15

You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL.

What is the standard deviation of your portfolio?

What is the proportion invested in the T-bill fund and each of the two risky funds?