You are discussing your retirement plan with Emma Li when she mentions

that Maureen O'Brien, a representative from TD Financial Services, is visiting your oce

today. You decide that you should meet with Maureen, so Emma sets up an appointment for

you later in the day. When you sit down with Maureen, she discusses the various investment

options available in the company's retirement plan. You mention to Maureen that you

researched your new employer before you accepted your new job. Analysis of the company

has led to your belief that the company is growing and will achieve a grater market share

in the future. You also feel you should support your employer. Given these considerations,

along with the fact that you are a conservative investor, you are leaning toward investing

100% of your retirement amount in the company you now work for.

Assume the risk-free rate is the historical average T-Bill rate of 3.4%. The correlation

between the TD Large-Cap Stock Fund and the TD Bond Fund is 0.15. Note that the

spreadsheet graphing and \Solver" in Excel may assist you in answering the questions.

The standard deviation and average return of the funds over the past 10 years:

10-year average return Standard deviation

TD TSX Composite Index Fund 9.18% 20.43%

TD Small-Cap Fund 14.12% 25.13%

TD Large-Company Stock Fund 8.58% 23.82%

TD Bond Fund 5.45% 9.85%

Would some other investors who are considering investing in the TD

Large-Cap Stock Fund, the TD Bond Fund, and the risk-free asset find it efficient to

short sell one of the two risky funds? Explain.