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 8%. The probability distribution of the risky funds is as follows: Standard Deviation Expected Return Stock fund (S) 194 34 Bond fund (B) 10 18 The correlation between the fund returns is 0.11. Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Portfolio invested in the stock Portfolio invested in the bond Expected return Standard deviation
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 8%. The probability distribution of the risky funds is as follows: Standard Deviation Expected Return Stock fund (S) 194 34 Bond fund (B) 10 18 The correlation between the fund returns is 0.11. Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Portfolio invested in the stock Portfolio invested in the bond Expected return Standard deviation
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
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Transcribed Image Text:Problem 7-7
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 8%. The probability distribution of the risky funds
is as follows:
Expected
Standard
Return
Deviation
Stock fund (S)
19%
34%
Bond fund (B)
10
18
The correlation between the fund returns is 0.11.
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.
(Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Portfolio invested in the stock
Portfolio invested in the bond
Expected return
Standard deviation
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