A pension fund manager is considering three mutual funds. The first is a stock fund,...
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Accounting
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |||||
| Stock fund (S) | 16 | % | 35 | % | ||
| Bond fund (B) | 12 | 15 | ||||
The correlation between the fund returns is 0.13.
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Portfolio invested in the stock:
Portfolio invested in the bond:
a-2. What is the expected value and standard deviation of its rate of return? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Expected Return:
Standard Deviation:
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