A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.8%. The probability distributions of the risky funds are:
Expected Return Standard Deviation Stock fund (S) 19 % 48 % Bond fund (B) 9 % 42 %
The correlation between the fund returns is .0762.
Suppose now that your portfolio must yield an expected return of 17% and be efficient, that is, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Standard deviation %
b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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 answers to 2 decimal places.)
Proportion Invested Stocks % Bonds %
References
eBook & Resources
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.8%. The probability distributions of the risky funds are: |
Expected Return | Standard Deviation | |||
Stock fund (S) | 19 | % | 48 | % |
Bond fund (B) | 9 | % | 42 | % |
The correlation between the fund returns is .0762. |
Suppose now that your portfolio must yield an expected return of 17% and be efficient, that is, on the best feasible CAL. |
a. | What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Standard deviation | % |
b-1. | What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
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 answers to 2 decimal places.) |
Proportion Invested | |
Stocks | % |
Bonds | % |
References
eBook & Resources