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 4.1%. The probability distributions ofthe risky funds are:
Expected Return Standard Deviation
Stock fund (S) 11 % 33 %
Bond fund (B) 8 % 25 %
The correlation between the fund returns is .1560.

Suppose now that your portfolio must yield an expected return of 9%and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of yourportfolio? (Do not round intermediate calculations. Roundyour answer to 2 decimal places.)

Standard deviation            %
b-1. What is the proportion invested in theT-bill fund? (Do not round intermediate calculations. Roundyour answer to 2 decimal places.)

Proportion invested in the T-bill fund            %

b-2. What is the proportion invested in each ofthe two risky funds? (Do not round intermediatecalculations. Round your answers to 2 decimal places.)
Proportion Invested
Stocks %
Bonds %

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4.1 Ratings (458 Votes)

Stock FundAsset 1Bond FundAsset 2Expected Return of asset1R111ExpectednReturn of asset2R28Standard deviation of asset 1S133Standard deviation of asset 2S225Correlation of asset 1 and 2Corr1201560Covariance12Corr12S1S21287w1Investment in 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 4.1%. The probability distributions ofthe risky funds are: Expected ReturnStandard DeviationStock fund (S)11%33%Bond fund (B)8%25%The correlation between the fund returns is .1560.Suppose now that your portfolio must yield an expected return of 9%and be efficient, that is, on the best feasible CAL.a. What is the standard deviation of yourportfolio? (Do not round intermediate calculations. Roundyour answer to 2 decimal places.)Standard deviation %b-1. What is the proportion invested in theT-bill fund? (Do not round intermediate calculations. Roundyour answer to 2 decimal places.)Proportion invested in the T-bill fund %b-2. What is the proportion invested in each ofthe two risky funds? (Do not round intermediatecalculations. Round your answers to 2 decimal places.)Proportion InvestedStocks%Bonds%

	Expected Return		Standard Deviation
Stock fund (S)	11	%	33	%
Bond fund (B)	8	%	25	%