A pension fund manager is considering three mutual funds. The first is a stock fund, the second
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Question:
| Expected Return | Standard Deviation |
Stock fund (S) | 15% | 32% |
Bond fund (B) | 9 | 23 |
The correlation between the fund returns is .15.
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?
b. What is the proportion invested in the T-bill fund and each of the two risky funds?
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