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 5.4%. The probability distributions of the risky funds are:

	Expected Return	Standard Deviation
Stock fund (S)	15%	44%
Bond fund (B)	8%	38%

The correlation between the fund returns is .0684.

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

Stock %

Bonds %