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 5.4 %. The probability distributions of the risky funds are: Stock fund (S) Bond fund (B) Expected Return 15% Standard Deviation 8% 44% 38% The correlation between the fund returns is .0684. Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 23.68 % b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Proportion invested in the T-bill fund 13.43%
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 5.4 %. The probability distributions of the risky funds are: Stock fund (S) Bond fund (B) Expected Return 15% Standard Deviation 8% 44% 38% The correlation between the fund returns is .0684. Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 23.68 % b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Proportion invested in the T-bill fund 13.43%
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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Transcribed Image Text: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 5.4%. The probability distributions of the risky
funds are:
Stock fund (S)
Bond fund (B)
Expected Return Standard Deviation
15%
8%
44%
38%
The correlation between the fund returns is .0684.
Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Answer is complete but not entirely correct.
Standard
deviation
23.68
%
b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Answer is complete but not entirely correct.
Proportion invested in the T-bill fund
13.43%
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