EBK BRIEF PRINCIPLES OF MACROECONOMICS
EBK BRIEF PRINCIPLES OF MACROECONOMICS
7th Edition
ISBN: 8220100469886
Author: Mankiw
Publisher: Cengage Learning US
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Chapter 9, Problem 3QR
To determine

Benefit of diversification.

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Answer question 2 only.
1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a (riskless) T-bill money market fund that yields a rate of 8%. The probability distributions of the risky funds have the following characteristics: Standard Deviation (%) Expected return (%) Stock fund (Rs) 20 30 Bond fund (RB) 12 15 The correlation between the fund returns is .10.
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