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 5.5%. The probability distribution of the risky funds is as follows:

	Expected Return	Standard Deviation
Stock fund (S)	15%	32%
Bond fund (B)	9	23

The correlation between the fund returns is 0.15.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.

Portfolio invested in the stock	%
Portfolio invested in the bond

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? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation %

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Proportion invested in the T-bill fund %

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Proportion Invested
Stocks	%
Bonds	%

a. 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%?

	Investment Proportions
Stocks	%
Bonds	%

b. Calculate the standard deviation of the portfolio which yields an expected return of 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation %