The Tuva Republic of the former USSR is an idyllic perfect market except that you are allowed to invest in only one of the following cooperative funds - in addition to, of course, the Lenin Treasury bill, which is issued by the Ministry of Finance, Moscow. The expected value and the standard deviation of the cooperatives returns are given as follows:

Coop Funds A B C D E F

Std. Dev. 18 10 8 5 22 15

Exp. Return (%) 5 8 12 -2 17 15

a. Identify the set of efficient funds.

b. Which securities will everyone choose to invest in? Assume the Lenin T-bill is expected to yield 8%, and you can buy or short sell it.

c. Compute the portfolio composition and its risk level that yield a 16% rate of return on average.

Presently, in the spirit of Glasnost, you find out from The Gorky Street Journal that, you can buy Lenin T-bills at 10%.

d. How does this affect your answer to (c)?