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Problem 7-9 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 7%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (B) Expected Return 18% 15 Standard Deviation 35% 20 The correlation between the fund returns is 0.12. You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 19.09% b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Money market fund Stocks Bonds Proportion Invested 45.45% 54.55% 0.00%

Problem 7-9 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 7%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (B) Expected Return 18% 15 Standard Deviation 35% 20 The correlation between the fund returns is 0.12. You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 19.09% b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Money market fund Stocks Bonds Proportion Invested 45.45% 54.55% 0.00%

Essentials Of Investments
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 7-9 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 7%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (B) Expected Return 18% 15 Standard Deviation 35% 20 The correlation between the fund returns is 0.12. You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 19.09% b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Money market fund Stocks Bonds Proportion Invested 45.45% 54.55% 0.00%
Transcribed Image Text:Problem 7-9 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 7%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (B) Expected Return 18% 15 Standard Deviation 35% 20 The correlation between the fund returns is 0.12. You require that your portfolio yield an expected return of 13%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Standard deviation 19.09% b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Money market fund Stocks Bonds Proportion Invested 45.45% 54.55% 0.00%
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