The expected return of 12.50% lies between corner portfolios 4 and 5 with expected returns of 12.79% and 10.54%. We solve for w in the following equation:
12.50 = w(12.79) + (1-w)(10.54)
w = 0.87
In other words, the efficient portfolio with an expected return of 12.50% has 87% weight of corner portfolio 4 and 13% weight of corner portfolio 5. With respect to the US bonds asset class, the weight is then derived as follows:
Weight of US bonds = (0.87)(0%) + (0.13)(51.30) = 6.67%
