Question
A pension fund manager is considering three mutual funds. The first is a stock fund, the...
A pension fund manager is considering three mutual funds. The
first is a stock fund, the second is a long-term bond fund, and the
third is a money market fund that provides a safe return of 8%. The
characteristics of the risky funds are as follows:
| Expected Return | Standard Deviation | ||||||
| Stock fund (S) | 16 | % | 35 | % | |||
| Bond fund (B) | 12 | 15 | |||||
The correlation between the fund returns is 0.13.
a-1. What are the investment proportions in the
minimum-variance portfolio of the two risky funds? (Do not
round intermediate calculations. Enter your answers as decimals
rounded to 4 places.)
a-2. What are the expected value and standard
deviation of its rate of return? (Do not round intermediate
calculations. Enter your answers as decimals rounded to 4
places.)
Homework Answers
Answer #1
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