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)	16%	40%
Bond fund (B)	10%	31%

The correlation between the fund returns is 0.11.

Problem 6-11 (Algo)

Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL.

Required: a. What is the standard deviation of your portfolio?

standard deviation ______ %

What is the proportion invested in the T-bill fund?

proportion invested in the T-bill fund ______ %

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

stock _____ %

bond ______ %