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:

stock fund: expected return 15% , standard deviation 32%

bond fund: expected return 9%, standard deviation 23%

a. What would be the investment proportions of your portfolio if you were limited to only the stock and bond funds and the portfolio has to yield an expected return of 12%

stocks ?

bonds?

b. calculate the standard deviation of the portfolio which yields an expected return of 12%