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 government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |||||
| Stock fund (S) | 19 | % | 32 | % | ||
| Bond fund (B) | 12 | 15 | ||||
The correlation between the fund returns is 0.11.
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.)
| Portfolio invested in the stock | |
| Portfolio invested in the bond |
a-2. What is 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.)
| Rate of Return | |
| Expected return | |
| Standard deviation |
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