A pension fund manager is considering three mutual funds. The first is a stock fund, the second
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Question:
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows:
Stock Fund: Expected Return=20%, Standard Deviation=40%
Bond Fund: Expected Return:10%, Standard Deviation=20%
The correlation between the fund returns is 0.15.
What is the Sharpe ratio of the complete portfolio with 30% invested in optimal risky portfolio and 70% invested in risk-free asset?
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