A pension fund manager is considering three funds, a stock fund, a T-bill money market fund that yields a risk-free rate of 5.5%, and a long-term government and corporate bond fund. The probability distributions of the risky funds are:

	Expected Return	Standard Deviation
Horizon Investments Class A Bond Fund	9%	23%
Mutual Income Stock Fund	15%	32%
The correlation between the fund returns is .15

a.) What is the Sharpe ratio of the best feasible CAL? b.) Suppose that your portfolio must yield an expected return of 12% and be efficient- that is, 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? c.) If you were to use only the two risky funds and still require an expected return of 12%, what would be the investment proportions of your portfolio?

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