Suppose you believe that over the next five years, stocks will produce returns that are 5 percent worse per year, on average, than the 1973–2012 data. Find an asset allocation among stocks, T-bills, and bonds that yields an expected annual return of at least 6 percent, yet minimizes risk.

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6 7 Year 8 9 10 11 12 13 14 15 16 17 18 19 39 40 41 42 43 44 45 46 47 A 1973 B C Annual Returns on Investments in Stocks T.Bills T.Bonds -14.31% 5.07% 3.66% 1974 -25.90% 7.45% 1975 37.00% 7.15% 1976 23.83% 5.44% 1977 -6.98% 4.35% 1978 6.51% 6.07% 1979 18.52% 9.08% 1980 31.74% 12.04% 1981 -4.70% 15.49% 1982 20.42% 10.85% 1983 22.34% 7.94% 1984 6.15% 9.00% 2004 10.88% 8.51% 2005 4.91% 7.81% 2006 15.79% 1.19% 2007 5.49% 9.88% 2008 -37.00% 25.87% 2009 26.46% -14.90% 2010 14.82% 0.13% 2011 2012 2.07% 0.03% 15.83% 0.05% 1.99% 3.61% 15.98% 1.29% -0.78% 0.67% -2.99% 8.20% 32.81% 3.20% 13.73% 1.02% 1.20% 2.98% 4.66% 1.60% 0.10% 8.46% 16.04% 2.97%