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 3.0%. The probability distributions of the risky funds are:

Expected Return

Standard Deviation

  Stock fund (S)

12

%

41

%

  Bond fund (B)

5

%

30

%

The correlation between the fund returns is .0667.

Suppose now that your portfolio must yield an expected return of 9% 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

%