4

Use the formula Complete all parts, thank you very much!

a 4. (30pt) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Funds Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12% 15% and the correlation coefficient between the returns of two funds is 0.1. (a) What are the investment proportions in the minimum-variance portfolio of the two risky funds? What are the expected value and standard deviation of its rate of return? (b) Tabulate and draw the feasible set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. (c) Determine the tangent portfolio. What are the expected return and standard deviation of this tangent portfolio? (d) You require that your portfolio yield an expected return of 14%, and that it is efficient. In other words, it is on the CAL determined by the optimal risky portfolio. What is the proportion invested in the money market fund and each of the two risky funds? What is the standard deviation of your portfolio