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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. The probability distribution of the risky funds is as follows: Stock Fund (5) Bond Fund (B) T-bill Fund (F) Expected Return 15% 8% Standard Deviation 25% 15% 0% 5% Analysts estimate that the tangency portfolio (Q) has an expected return of 20% and a standard deviation of 30%. a. In a u-o diagram, draw the capital allocation line (CAL) of Q, and indicate where the mutual funds S, B, and F are located. Which portfolios are efficient or inefficient? Why? b. Determine the weights of an efficient portfolio that has the same standard deviation as the stock fund (s). What's the expected return of this portfolio? C. Determine the weights of an efficient portfolio that has the same expected return as the bond fund (B). What's the standard deviation of this portfolio? St 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. The probability distribution of the risky funds is as follows: Stock Fund (5) Bond Fund (B) T-bill Fund (F) Expected Return 15% 8% Standard Deviation 25% 15% 0% 5% Analysts estimate that the tangency portfolio (Q) has an expected return of 20% and a standard deviation of 30%. a. In a u-o diagram, draw the capital allocation line (CAL) of Q, and indicate where the mutual funds S, B, and F are located. Which portfolios are efficient or inefficient? Why? b. Determine the weights of an efficient portfolio that has the same standard deviation as the stock fund (s). What's the expected return of this portfolio? C. Determine the weights of an efficient portfolio that has the same expected return as the bond fund (B). What's the standard deviation of this portfolio? St
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