In: Finance
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 4.0%. The probability distributions of the risky funds are: |
Expected Return | Standard Deviation | |||
Stock fund (S) | 10 | % | 32 | % |
Bond fund (B) | 7 | % | 24 | % |
The correlation between the fund returns is .1250. |
Suppose now that your portfolio must yield an expected return of 8% 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 | % |