Question
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund,
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 17 % 34 % Bond fund (B) 11 % 25 %
The correlation between the fund returns is .15.
SUPPOSE now that your portfolio must yield an expected return of 14% and be efficient that is, on the best feasible CAL A.
What is the standard deviation of your portfolio
b. what is the proportion invested in the t-bill fund
b-2 what is the proportion invested in each of the two risky funds
Stocks : Bonds :
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