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 3.5%. The proability distributionsof the risky funds are: Expected Return Standard Deviation Stock Fund (S) 23% 25% Bond Fund (B) 12% 18% *The correlation between the fund returns is .55.* What are the expected return, standard deviation, and sharpe ratio for the minimum-variance portfoilo of the two risky funds, and what would be the weights of the stock and bond fund for an optimal portfoilo?
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 3.5%. The proability distributionsof the risky funds are: Expected Return Standard Deviation Stock Fund (S) 23% 25% Bond Fund (B) 12% 18% *The correlation between the fund returns is .55.* What are the expected return, standard deviation, and sharpe ratio for the minimum-variance portfoilo of the two risky funds, and what would be the weights of the stock and bond fund for an optimal portfoilo?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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, and the third is a T-bill
| Expected Return | Standard Deviation | |
| Stock Fund (S) | 23% | 25% |
| Bond Fund (B) | 12% | 18% |
*The correlation between the fund returns is .55.*
What are the expected return, standard deviation, and sharpe ratio for the minimum-variance portfoilo of the two risky funds, and what would be the weights of the stock and bond fund for an optimal portfoilo?
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