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Section Break ( 8 - 1 1 ) Skip to question [ The following information applies to the questions displayed below. ] A pension fund

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(
8
-
1
1
)
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[
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
)
1
6
%
3
2
%
Bond fund
(
B
)
1
0
%
2
3
%
The correlation between the fund returns is
0
.
2
0
.
Problem
6
-
9
(
Algo
)
Required:
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.Problem
6
-
1
0
(
Algo
)
Required:
What is the Sharpe ratio of the best feasible CAL?Problem
6
-
1
1
(
Algo
)
Suppose now that your portfolio must yield an expected return of
1
3
%
and be efficient, that is
,
on the best feasible CAL.
Required:
a
.
What is the standard deviation of your portfolio?

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