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 thirdis a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows:ExpectedReturnStandardDeviationStock fund (S)Bond fund (B)The correlation between the fund returns is 0.09.You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL.17%1435%18.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?

Here, Expected Return E(R )Standard Deviation Stock Fund (S)17%35%Bond Fund (B)14%18%Risk Free…

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: Standard Deviation Stock fund (S) 35% Bond fund (B) 18 The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. Expected Return 17% 14 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?

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: Standard Deviation Stock fund (S) 35% Bond fund (B) 18 The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. Expected Return 17% 14 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?

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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