C. The IPS spells out the absote which the advisor should buy and sell on behalt of the client.\ Answer:\ Questions 12 to 16\ Joan Hammond, CFA, manages the Sparta Corporation's pension fund. She recently presented her quarterly report to the fund's board of trustees and is recommending a change in the fund'o asset allocation. Based on her market expectations, she recommends allocating 30% of assets to value mocks. 50% to growth stocks, and 20% to bonds. Hammond's market expectations are shown in Exhibit 1.\ Exhibit 1 Hammond's Market Expectations\ Value Stock Portfolio\ Expected annual return\ Grawth Stock Portfolio\ Expected standard deviation of\ 12%\ annual returns\ 14%\ 16%\ Bond Portfolio\ 8%\ 22%\ Value stock portfolio\ 8%\ Return Correlations\ Growth stock portfolio\ 1.0\ 0.9\ 0.3\ Bond portfolio\ 1.0\ -\ 0.2\ 1.0\ Board member Benjamin Donner is skeptical about the recommended change in asset allocation for the pension fund and has several questions for Hammond. He asks Hammond to describe the risk-return characteristics of her recommended portfolio. Hammond responds:\ "I believe the recommended asset allocation will produce a portfolio that is the global minimum. variance portfolio. The global minimum-variance portfolio has the lowest level of risk compared with all other portfolios on the efficient frontier, and thus it also dominates all other portfolios on the efficient frontier.".\ Donner argues that Hammond should consider broadening the diversification of the fund's portfolio into a\ "fully diversified portfolio" by adding real estate and international stocks. He states that these additions will improve the efficiency of the fund. Donner estimates the fully diversified portfolio would have an expected return of 13% and a standard deviation of 15%. He would then further expand the investment opportunity set by combining the proposed fully diversified portfolio with either risk-free borrowing or fending. He notes that the appropriate risk-free rate of return is 4%.\ 12. Using Hammond's recommended asset allocation and market expectations from Exhibit 1, the expected standard deviation of annual returns for the pension fund's portfolio is closest to:\ A. 12.1%.\ B.17.4%.\ C.15.9%.\ Answer: