ATTEND ONLY IF YOU CAN SOLVE ALL THE QUESTIONS TOGETHER. IF NOT I WILL REPORT YOUR ANSWER IF PARTLY ANSWERED.

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 5%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 17% 30% Bond fund (B) 11% 22% The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.)

Chicago Savings Corp. Is planning to make an offer for Ernle's Bank \& Trust. The stock of Ernle's Bank \& Trust Is currently selling for $50 a share. a. If the tender offer is planned at a premium of 60 percent over market price, what will be the value offered per share for Ernle's Bank \& Trust? (Do not round Intermedlate calculatlons and round your answer to the nearest whole dollar.) b. Suppose before the offer Is actually announced, the stock price of Ernle's Bank \& Trust goes to $70 because of strong merger rumors. If you buy the stock at that price and the merger goes through (at the price computed in part a), what will be your percentage gain? (Do not round Intermedlate calculatlons. Input the amount as a positive percent value rounded to 2 declmal places.) c. Because there is always the possibility that the merger could be called off after it is announced, you also want to consider your percentage loss If that happens. Assume you buy the stock at $70 and it falls back to Its orlginal value after the merger cancellation. What will be your percentage loss? (Do not round Intermedlate calculations. Input answer as a positive value. Input your answer as a percent rounded to 2 decimal places.) d. There is an 80 percent probability that the merger will go through when you buy the stock at $70, and only a 20 percent chance that it will be called off. d-1. Compute the expected value of the return on the Investment. Assume the time perlod Involved is short. (Do not round Intermedlate calculations. Input your answer as a percent rounded to 2 decimal places.)