Problem 7-4 (Algo) 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 8%. The characteristics of the risky funds are as follows: Expected Return Stock fund (S) 17% 13 Bond fund (B) The correlation between the fund returns is 0.12. Standard Deviation 38% 18 Required: a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate of return?
Problem 7-4 (Algo) 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 8%. The characteristics of the risky funds are as follows: Expected Return Stock fund (S) 17% 13 Bond fund (B) The correlation between the fund returns is 0.12. Standard Deviation 38% 18 Required: a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate of return?
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
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Problem 7-4 (Algo)
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 8%. The characteristics of the risky funds are as follows:
Standard
Deviation
38%
18
Stock fund (S)
Bond fund (B)
The correlation between the fund returns is 0.12.
Expected
Return
Required:
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds?
a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate of return?
Req A1
17%
13
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IM
Req A2
Answer is not complete.
What are the investment proportions in the minimum-variance portfolio of the two risky funds?
Note: Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.
Portfolio invested in the stock
14.7834 x
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