A pension fund manager is considering three mutual funds. The first is a stock fund, the...

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Finance

A pension fund manager is considering three mutual funds. Thefirst is a stock fund, the second is a long-term government andcorporate bond fund, and the third is a T-bill money market fundthat yields a sure rate of 5.5%.
The probability distributions of the risky funds are:
Expected Return Stand. Dev
Stock fund (S) E.R 15 % S.D. 32 %
Bond fund (B) E.R. 9 % S.D. 23 %
The correlation between the fund returns is 0.15.
What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)

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4.2 Ratings (710 Votes)

The best feasible CAL Capital Allocation Line is the one which is just tangent to the efficient frontier of risky assets This point of tangency can be determined by finding the optimal risky See Answer

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A pension fund manager is considering three mutual funds. Thefirst is a stock fund, the second is a long-term government andcorporate bond fund, and the third is a T-bill money market fundthat yields a sure rate of 5.5%.The probability distributions of the risky funds are:Expected Return Stand. DevStock fund (S) E.R 15 % S.D. 32 %Bond fund (B) E.R. 9 % S.D. 23 %The correlation between the fund returns is 0.15.What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)