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 sure rate of 5.4%. The probability distributions of
the risky funds are:
| Expected Return | Standard Deviation | |||
| Stock fund (S) | 15 | % | 44 | % |
| Bond fund (B) | 8 | % | 38 | % |
The correlation between the fund returns is .0684.
Suppose now that your portfolio must yield an expected return of
13% 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 | % |
Homework Answers
Answer #1
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