Problem 7-4A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government andcorporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky fundsis as follows:ExpectedStandardReturnDeviationStock fund (S)Bond fund (B)17%30%1122The correlation between the fund returns is 0.10.a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds. (Do not round intermediatecalculations. Enter your answers as decimals rounded to 4 places.)Portfolio invested in the stock69.2241Portfolio invested in the bond0.7649

Given, Risk-free rate = 8% Stock expected return = 17% Stock standard deviation = 30% Bonds expected…

Answered: A pension fund manager is considering…

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 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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