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 sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 17 % 34 % Bond fund (B) 11 % 25 %

The correlation between the fund returns is .15.

SUPPOSE now that your portfolio must yield an expected return of 14% and be efficient that is, on the best feasible CAL A.

What is the standard deviation of your portfolio

b. what is the proportion invested in the t-bill fund

b-2 what is the proportion invested in each of the two risky funds

Stocks : Bonds :