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

60.1K

Verified Solution

Question

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 5.9%. The probability distributions ofthe risky funds are:

    Expected Return   StandardDeviation
Stock fund (S)   20%   49%
Bond fund (B)   9%   43%
The correlation between the fund returns is 0.0721.

What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)

Answer & Explanation Solved by verified expert

3.9 Ratings (406 Votes)

First we will have to solve the mix for the risky optimalportfolio Let Ws be the proportion of stock fund in therisky optimal See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

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 5.9%. The probability distributions ofthe risky funds are: Expected Return StandardDeviationStock fund (S) 20% 49%Bond fund (B) 9% 43%The correlation between the fund returns is 0.0721.What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)