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 ofthe risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
15%
32%
Bond fund (B)
9
23
The correlation between the fund returns is .15.
Tabulate and draw the investment opportunity set of the tworisky funds. Use investment proportions for the stock fund of 0% to100% in increments of 20%. What expected return and standarddeviation does your graph show for the minimum-varianceportfolio?
Draw a tangent from the risk-free rate to the opportunityset.

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First let us tabulate the required informationFundEXPECTED RETURNSTANDARD 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 ofthe risky funds are:Expected ReturnStandard DeviationStock fund (S)15%32%Bond fund (B)923The correlation between the fund returns is .15.Tabulate and draw the investment opportunity set of the tworisky funds. Use investment proportions for the stock fund of 0% to100% in increments of 20%. What expected return and standarddeviation does your graph show for the minimum-varianceportfolio?Draw a tangent from the risk-free rate to the opportunityset.

	Expected Return	Standard Deviation
Stock fund (S)	15%	32%
Bond fund (B)	9	23