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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 rate of 5.5%. The probability distribution of the risky funds is as follows:
Stock fund (S) - Expected return - 15% Standard Deviation - 32%
Bond fund (B) Expected return - 9% Standard Deviation - 23%
The correlation between the fund returns is 0.15. |
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio |
Portfolio invested in the stock | % |
Portfolio invested in the bond | % |
Expected return | % |
Standard deviation | % |
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