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A pension fund manager is considering three mutual funds. The first is a stock fund, the...

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.3%. The probability distributions of the risky funds are:   

Expected Return Standard Deviation
Stock fund (S) 14 % 43 %
Bond fund (B) 7 % 37 %

The correlation between the fund returns is .0459.


Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL.


a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)


Standard deviation             %

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)


Proportion invested in the T-bill fund             %


b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Proportion Invested
Stocks %
Bonds %
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