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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) 15 % 32 %
Bond fund (B) 9 % 23 %


The correlation between the fund returns is 0.15.


a-1.

Calculate the expected return.


Expected return %

a-2.

What would be the investment proportions of your portfolio?


Investment Proportions
Stocks %
Bonds %


b.

Calculate the standard deviation of the portfolio which yields an expected return of 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)


Standard deviation %

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