Required information

Skip to question

[The following information applies to the questions displayed below.]

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 0.15.

Required:

a. What would be the investment proportions of your portfolio if you were limited to only the stock and bond funds and the portfolio has to yield an expected return of 12%?

Investment Proportions

Stocks: %

Bonds: %