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 5.3%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 14 % 43 % Bond fund (B) 7 % 37 % The correlation between the fund returns is .0459. Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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) | 14 | % | 43 | % |
| Bond fund (B) | 7 | % | 37 | % |
The correlation between the fund returns is .0459.
Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
