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2. (46 POINTS) A pension fund manager is considering investing in 2 mutual funds: a stock fund (S), a long-term government and corporate bond fund
2. (46 POINTS) A pension fund manager is considering investing in 2 mutual funds: a stock fund (S), a long-term government and corporate bond fund (B). The following table presents the expected return and standard deviation of the stock fund and of the bond fund: Expected return (ri) Standard deviation (;) T Stock fund (S) .24 .40 Bond fund (B) .12 .20 The correlation between the stock fund and the bond fund is p = .25 (e) An investor requires a target expected return of 15%, that is E (rr) = .15. Find the standard deviation of her portfolio, T. What proportion will she invest in the monetary market fund, WMONEY? What proportion will she invest in the stock fund, ws? What proportion will she invest in the bond fund, wB
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