Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market 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
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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 5%. The characteristics of the risky funds are as follows:
Expected
Return
17%
11
Standard
Deviation
Stock fund (5)
Bond fund (B)
The correlation between the fund returns is 0.10
You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL
30%
22
Required:
a. What is the standard deviation of your portfolio?
b. What is the proportion invested in the money market fund and each of the two risky funds?
Transcribed Image Text:es 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 5%. The characteristics of the risky funds are as follows: Expected Return 17% 11 Standard Deviation Stock fund (5) Bond fund (B) The correlation between the fund returns is 0.10 You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL 30% 22 Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?
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