Question: A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.06. The probability distribution of the risky funds is as follows:

	Expected ret.	std. dev.
Stock fund	0.18	0.32
Bond fund	0.14	0.14

The correlation between the fund returns is 0.3.

What is the expected return of the optimal risky portfolio?

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