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 $6\%.$ The characteristics of the risky funds are as follows:

The correlation between the fund returns is $0\mathrm{.}14.$

You require that your portfolio yield an expected return of $16\%,$ and that it be efficient, that is$,$ on the steepest feasible CAL.

Required:

a$.$ What is the standard deviation of your portfolio?

b$.$ What is the proportion invested in the money market fund and each of the two risky funds?

Answer is complete but not entirely correct.

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