You currently have all your funds invested in a portfolio of shares of Polycorp (PLC). The shares have an expected return of 15%pa and a standard deviation of 22%pa. You are offered the opportunity to invest in two funds managed by the Rearguard Portfolio Management Company. One is a Bond Fund that has an expected return of 4%pa and a standard deviation of 4%pa. The other fund is one that tracks the market index and has an expected return of 18%pa and a standard deviation of 25%pa. The correlation between the index fund and the bond fund is 0.4. Construct a portfolio of the Index and Bond funds that gives the same expected return as a portfolio of Polycorp shares. What is the composition and standard deviation of this portfolio? Use this example to comment on the benefits of diversification.