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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 that yields a rate of 4.6%. The probability distribution of the two risky funds is as follows: |
Expected Return | Standard Deviation | |
Stock fund (S) | 16% | 36% |
Bond fund (B) | 7% | 30% |
The correlation between the two fund returns is 0.16.
|
Calculate the expected return of the optimal risky portfolio. Assume that short sales of mutual funds are allowed Enter as a decimal number rounded to 4 decimal places |
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