d) What is the reward-to-volatility ratio of the best feasible CAL? e) You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL, • What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund and each of the two risky funds?
d) What is the reward-to-volatility ratio of the best feasible CAL? e) You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL, • What is the standard deviation of your portfolio? What is the proportion invested in the T-bill 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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Question
answer d, e
Transcribed Image Text:A pension fund manager is considering three mutual funds. The first one is a stock
fund, the second one is a long term government and corporate bond fund and the
third is a T-bill money market fund that yields a rate of 8%. The probability
distribution of the risky funds is as follows:
Expected return
Standard deviation
Stock fund (S)
20%
30%
Bond fund (B)
12%
15%
The correlation between the fund returns is 0.10
a) What are the investment proportions in the minimum-variance portfolio of the two
risky funds, and what is the expected value and standard deviation of its rate of
return?
b) Tabulate the investment opportunity set of the two risky funds. Use investment
proportions for the stock fund of zero to 100% in increments of 20%.
c) Solve numerically for the proportions of each asset and for the expected return
and standard deviation of the optimal risky portfolio.
d) What is the reward-to-volatility ratio of the best feasible CAL?
e) You require that your portfolio yield an expected return of 14%, and that it be
efficient, on the best feasible CAL,
• What is the standard deviation of your portfolio?
What is the proportion invested in the T-bill fund and each of the two
risky funds?
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