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 15 Suppose now that your portfolio must yield an expected return of 12 and be efficient, that is, on the best feasible CAL a What is the standard deviation of your portfolio b What is the proportion invested in the T bill fund and each of the two risky funds

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 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 .15.

Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL.

a.What is the standard deviation of your portfolio?

b. What is the proportion invested in the T-bill fund and each of the two risky funds?

Step by Step Solution

★★★★★

3.53 Rating (156 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Please see the answer as attachment W proportion investdin stock Fund wDy proportion imveste... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Corporate Finance Questions!

A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and the third is a money market fund. The money market fund yields a...

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...

Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? b. What is the...

What are the investment proportions in the minimum-variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate of return? A pension fund manager is...

Draw a tangent from the risk-free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal portfolio? A pension fund manager is considering...

You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL. a. What is the standard deviation of your portfolio? b. What is the proportion...

If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the...

What are the investment proportions of the minimum- variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate of return? A pension fund manager is...

What is the reward-to-volatility ratio of the best feasible CAL? A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and...

What is the Sharpe ratio of the best feasible CAL? 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,...

If there is a perpetual stream of $5600 per year, how much is this perpetuity worth today? (Interest rate is 10% per year.) () (A) 65400 (B) 56000 (C) $60000 (D) 70000 The value of the factor (P/F,...

A solution of Ni(N0 3 ) 2 is electrolyzed between platinum electrodes using a current of 5 amperes for 20 minutes. What mass of Ni is deposited at the cathode?

At 1200 hours, a ship leaves a point Q with position vector (10i + 38i) km relative to an origin O. The ship travels with velocity (6i8j) kmh. a Find the speed of the ship. b Find the position vector...

Which of the three basic functions of finance/accounting do you feel is most important in a small electronics manufacturing concern? Justify your position.

How can delegation of authority contribute to effective strategic management?

At the start of 2018, Textile Express Company determined its standard labor cost to be 2.25 hours per unit at $12.00 per hour. The budget for variable overhead was $9 per unit, and budgeted fixed...

Explain why prioritizing the relative importance of strengths and weaknesses in an IFE Matrix is an important strategic-management activity.

Draw a breakeven chart to illustrate lowering price.

Fingerprints can be found on almost any solid surface, including the human body. True False

Pension Fund Data Blue Mesa's Pension fund has decided to reduce its exposure to Blue Mesa stock and move all its holdings into mutual funds. Knowing full well the benefits of diversification, the...

Omni Advisors, an international pension fund manager, plans to sell Omni Advisors, an international pension fund manager, plans to sell Omni Advisors, an international pension fund manager, plans to...

Please show how to work. Thank you! Question 4 6 pts 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,...

Required information Section Break (8-11) [The following information applies to the questions displayed below.] A pension fund manager is considering three mutual funds. The first is a stock fund,...

Could anybody check my work please? If i got wrong, please let know and please help me to correct it! Thank you so much! > Question 1 6 pts Consider the following table: Stock Fund Bond Fund Scenario...

I am completely lost, cannot find none of the answers to these questions Question 1 Suppose your expectations regarding the stock market are as follows: State of the Economy Boom Normal growth...