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 risk-free rate of 4.0%. The probability distributions of the risky funds are:

	Expected Return	Standard Deviation
Stock fund (S)	11%	16%
Bond fund (B)	6.5%	11.5%

The correlation between the fund returns is 0.25.

The investment proportions for each fund in the optimal risky portfolio are W_S = .7273 W_B=.2727.

*8. What is the expected return of the optimal risky portfolio?

9.77%

12.79%

19.37%

24.57%

*9. What is the standard deviation of the optimal risky portfolio?

9.77%

12.79%

19.37%

24.57%

*10. What is the reward-to-variability ratio of the best feasible CAL?

.4221

.4336

.4511

.7639

*11. You require that your portfolio yield an expected return of 9%, and that it be efficient on the best feasible CAL. What is the standard deviation of your portfolio?

10.99%

11.31%

14.22%

18.95%

*12. If no risk-free asset is available, what is the standard deviation of the best possible portfolio (i.e., using only stocks and bonds) with an expected return of 9%?

10.99%

11.31%

14.22%

18.95%