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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) 22 % 37 %
Bond fund (B) 14 23

The correlation between the fund returns is 0.10.

  

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Solutions

Expert Solution

The image shows answer in % form

The answers in decimal form are : we have to divide % answers by 100 to get in decimals

proportion of stock fund : 0.4954

proportion of bond fund : 0.5046

expected return :0.1796

standard deviation : 0.2265


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