A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Standard deviation Expected Return 24% 12 The correlation between the fund returns is 0.13. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested Standard Deviation 30% 19 % % % %
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Standard deviation Expected Return 24% 12 The correlation between the fund returns is 0.13. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested Standard Deviation 30% 19 % % % %
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
Related questions
Question
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long -term bond fund, and the third is a
Transcribed Image Text:A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third
is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows:
Stock fund (S)
Bond fund (B)
Standard deviation
Expected Return
24%
12
The correlation between the fund returns is 0.13.
You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)
Money market fund
Stocks
Bonds
b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal
places.)
Proportion
Invested
Standard Deviation
30%
19
%
%
%
%
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education