A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a Jong-erm government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock Fund (S) Bond Fund (B) a b. The correlation between the fund returns is -0.2 Calculate the following variables: Risk Premium of stock Fund Risk Premium of Bond Fund Variance of Stock Fund Variance of Bond Fund Covariance between Stock Fund and Bond Fund Write down the formulas you used to complete the table above 17% 10% W₁ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Tabulate the investment opportunities set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. From these options identify the portfolios closest to the minimum variance and optimal portfolios (do not use formulas)? Explain how to identify them. E(R₂) Sharpe W₁ 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 14% 0₂ Visual approximation of the portfolio closest to the minimum variance portfolio and explanation on how to find i

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a Jong-erm government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock Fund (S) Bond Fund (B) a b. The correlation between the fund returns is -0.2 Calculate the following variables: Risk Premium of stock Fund Risk Premium of Bond Fund Variance of Stock Fund Variance of Bond Fund Covariance between Stock Fund and Bond Fund Write down the formulas you used to complete the table above 17% 10% W₁ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Tabulate the investment opportunities set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. From these options identify the portfolios closest to the minimum variance and optimal portfolios (do not use formulas)? Explain how to identify them. E(R₂) Sharpe W₁ 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 14% 0₂ Visual approximation of the portfolio closest to the minimum variance portfolio and explanation on how to find i

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 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: Expected Return Standard Deviation Stock fund (S) 19 % 34 % Bond fund (B) 10 18 The correlation between the fund returns is 0.11. What is the Sharpe ratio of the best feasible CAL?
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 6%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 24% 14 Standard Deviation 33% 22 The correlation between the fund returns is 0.14. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below.
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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 bond fund, and the third is a money market fund that provides a safe return of 5%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (8) Standard deviation Expected Return 20% 11 The correlation between the fund returns is 0.09. 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 Standard Deviation 35% 15 % 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 I
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 16% 7% Stock fund (5) Bond fund (B) The correlation between the fund returns is 0.0385. Expected return Standard deviation Standard Deviation 45% 39% What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
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