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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 5.3%. The probability distributions ofthe risky funds are:

   

Expected ReturnStandard Deviation
  Stock fund (S)14%43%
  Bond fund (B)7%37%

   

The correlation between the fund returns is .0459.

Suppose now that your portfolio must yield an expected return of12% and be efficient, that is, on the best feasible CAL.

  

a.

What is the standard deviation of your portfolio? (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)

   

  Standard deviation%

    

b-1.

What is the proportion invested in the T-bill fund? (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)

   

  Proportion invested in the T-bill fund%

   

b-2.

What is the proportion invested in each of the two risky funds?(Do not round intermediate calculations. Round your answersto 2 decimal places.)

       Proportion Invested
  Stocks%
  Bonds%

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