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: Standard Deviation Stock fund (S) 33% 22 Bond fund (B) 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. Expected Return 24% 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? Complete this question by entering your answers in the tabs below. Required Req What is the proportion invested in the money market fund and each of the two risky funds? Note: Round your answers to 2 decimal places. Money market fund Stocks Bonds Proportion Invested % % %

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: Standard Deviation Stock fund (S) 33% 22 Bond fund (B) 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. Expected Return 24% 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? Complete this question by entering your answers in the tabs below. Required Req What is the proportion invested in the money market fund and each of the two risky funds? Note: Round your answers to 2 decimal places. Money market fund Stocks Bonds Proportion Invested % % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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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 7%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 16%, 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 Expected Return Standard Deviation 198 31% 23 14 Money market fund Stocks Bonds 19.33 % 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
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