Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 4.7%. The probability distributions of the risky funds are:

Expected Return

Standard Deviation

Stock fund (S)

17

%

37

%

Bond fund (B)

8

%

31

%

The correlation between the fund returns is .1065.

Suppose now that your portfolio must yield an expected return of 15% 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.)

Standard deviation

%

b-1.

What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Proportion invested in the T-bill fund

%

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Roberts, Hamdi Driss

8th Canadian Edition

01259270114, 9781259270116

More Books

Students also viewed these Finance questions