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 (8) Expected Return 19% 10 Standard Deviation 34% 18 The correlation between the fund returns is 011 You require that your portfolo 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.) 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
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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
194
10
Standard Deviation
Stock fund (S)
Bond fund (8)
34%
18
The correlation between the fund returns is 011.
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.)
Standard deviation
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
Money market fund
Stocks
Bonds
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: Expected Return 194 10 Standard Deviation Stock fund (S) Bond fund (8) 34% 18 The correlation between the fund returns is 011. 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.) Standard deviation 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 Money market fund Stocks Bonds
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