Bronc Gerson is 60 years of age and is considering retirement. Bronc got his name from the fact that as a young man he spent several years in the rodeo circuit competing as a bareback rider. His retirement portfolio currently is valued at $950,000 and is allocated in Treasury bills, an S&P 500 Index fund, and an emerging-market fund as follows:

a) Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Broncs portfolio?

b) Bronc is considering a reallocation of his investments to include more Treasury bills and less exposure to emerging markets. If Bronc moves all of his money from the emerging-market fund and puts it in Treasury bills, what will be the expected rate of return on the resulting portfolio?

\begin{tabular}{lcc} \hline & Expected Return & $ Value \\ Treasury bills & 2.5% & 275,000 \\ S\&P 500 Index fund & 8.5% & 450,000 \\ Emerging-market fund & 12.5% & 225,000 \\ \hline \end{tabular}