A pension fund manager is considering three mutual funds: a stock fund, a bond fund...
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Accounting
A pension fund manager is considering three mutual funds: a stock fund, a bond fund and a T-bill money market fund. The correlation between the stock and bond fund return is 0.15. The T-bill fund yields a sure return of 5.5%. The distributions of the risky funds are:
|
| Expected return | Standard deviation |
| Stock fund | 15% | 32% |
| Bond fund | 9% | 23% |
If you were to use only the above two risky (stock and bond) funds and still require an expected return of 12%, whats the standard deviation of such a portfolio?
A) 4.45%
B) 21.06%
C) 19.70%
D) 20.61%
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