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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,
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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, 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:
- Stock Fund (S): Expected return = 12% and standard deviation = 32%
- Bond Fund (B): Expected return = 8% and standard deviation = 23%
- The correlation between the fund returns is 0.15.
Which of the following is closest to the expected return for the optimal risky portfolio?
9.26%
19.94%
10.53%
23.06%
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