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 rate of 8%. The probability distribution of the risky funds is as follows:

Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12 15

f. You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL. f.1. What is the standard deviation of your portfolio? f.2. What is the proportion invested in the T-bill fund and each of the two risky funds? g. If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimized portfolio in Problem f. What do you conclude?