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 8%.

The characteristics of the risky funds are as follows:

(Feasible set and tangent portfolio) (a) Tabulate and draw the feasible set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. (b) Determine the tangent portfolio. What are the expected return and standard deviation of this tangent portfolio?

(CAL) You require that your portfolio yield an expected return of 14%, and that it is efficient. In other words, it is on the CAL determined by the optimal risky portfolio.

(c)What is the proportion invested in the money market fund and each of the two risky funds? (d) What is the standard deviation of your portfolio?

Thanks!!

Correlation Funds Stock fund (S) Expected Return 20% Standard Deviation 30% 0.1 Bond fund (B) 12% 15%