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	Std. Deviation
Stock Fund	15%	32%
Bond Fund	9%	23%

Suppose now that your portfolio must yield an expected return of 12% 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?

c) What is the proportion invested in each of the two risky funds?

d) 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%?

e) Calculate the standard deviation of the portfolio which yields an expected return of 12%