pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and e third is a money market fund. The money market fund yields a risk-free return of 5%. The inputs for the risky funds are given in the llowing table. Fund Expected Return 13% 6% 33% 16% he correlation coefficient between the stock and the bond funds is 0.4. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the bond fund? (Round termediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Stock fund Bond fund Expected return Variance Standard Deviation % %2 What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the money market fund? Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations
pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and e third is a money market fund. The money market fund yields a risk-free return of 5%. The inputs for the risky funds are given in the llowing table. Fund Expected Return 13% 6% 33% 16% he correlation coefficient between the stock and the bond funds is 0.4. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the bond fund? (Round termediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Stock fund Bond fund Expected return Variance Standard Deviation % %2 What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the money market fund? Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations
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 for investment. The first one is a stock fund, the second is a bond fund and
the third is a money market fund. The money market fund yields a risk-free return of 5%. The inputs for the risky funds are given in the
following table.
Fund
Stock fund
Bond fund
Expected return
Variance
Expected Return.
13%
6%
The correlation coefficient between the stock and the bond funds is 0.4.
a. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the bond fund? (Round
intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)
Expected return
Variance
%
%2
Standard
Deviation
33%
16%
b. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the money market fund?
[Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations
to at least 4 decimal places and final answers to 2 decimal places.)
%
%2
c. Compare the portfolios in parts a and b with a portfolio that is invested entirely in the bond fund. (You may select more than one
answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with
the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as
incorrect.)
? The portfolios in parts a and b have higher variances than the bond alone.
? The portfolios in parts a and b have lower variances than the bond alone.
? The portfolios in parts a and b offer better expected returns than the bond alone.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7137f8a5-201d-4e01-af2a-9e9bb4c141de%2F2ab6f4b7-cf52-473f-8211-e1818bf60e2b%2F3p5v9pj_processed.png&w=3840&q=75)
Transcribed Image Text:A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and
the third is a money market fund. The money market fund yields a risk-free return of 5%. The inputs for the risky funds are given in the
following table.
Fund
Stock fund
Bond fund
Expected return
Variance
Expected Return.
13%
6%
The correlation coefficient between the stock and the bond funds is 0.4.
a. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the bond fund? (Round
intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)
Expected return
Variance
%
%2
Standard
Deviation
33%
16%
b. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the money market fund?
[Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations
to at least 4 decimal places and final answers to 2 decimal places.)
%
%2
c. Compare the portfolios in parts a and b with a portfolio that is invested entirely in the bond fund. (You may select more than one
answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with
the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as
incorrect.)
? The portfolios in parts a and b have higher variances than the bond alone.
? The portfolios in parts a and b have lower variances than the bond alone.
? The portfolios in parts a and b offer better expected returns than the bond alone.
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VIEWStep 4: c. Calculation of expected return and variance for a portfolio if invested only in bond funds:
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