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 4.3%. The probability distributions of the risky funds are:
Expected Return | Standard Deviation | |||
Stock fund (S) | 13 | % | 34 | % |
Bond fund (B) | 6 | % | 27 | % |
The correlation between the fund returns is .0630. Suppose now that your portfolio must yield an expected return of 11% and be efficient, that is, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Proportion Invested Stocks Bonds
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started