There are two risky assets. The first is a stock fund, and the second is a...

There are two risky assets. The first is a stock fund, and the second is a long-term government and corporate bond fund. The probability distribution of risky funds is as follows:

	Expected ret.	std. dev.
stock fund	0.11	0.23
bond fund	0.5	0.1

The correlation between the fund returns is 0.03. T-bill rate is 0.37. A portfolio has 40% of assets invested in the stock fund and 60% of assets invested in the bond fund. What is the standard deviation of the portfolio?

Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

Solutions

Expert Solution

Given:

Return of Stock fund= 11% or 0.11
Return of Bond fund= 5% or 0.5
Standard deviation of stock fund= 0.23
Standard deviation of bond fund= 0.1
correlation= 0.03
Weight of stock fund=40% or 0.4
Weight of bond fund=60% or 0.6

Standard Deviation of the portfolio=

Portfolio Risk=

= 0.1113

= 11.13%

the standard deviation of the portfolio is 0.1113 or 11.13

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.07. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.29 Bond fund 0.11 0.11 The correlation between the fund returns is 0.5. What is the weight of stock fund in the optimal risky portfolio? Round your answer to 4 decimal...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.06. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.3 Bond fund 0.12 0.14 The correlation between the fund returns is 0.2. What is the expected return of the optimal risky portfolio? Round your answer to 4 decimal places. For...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.20 0.29 Bond fund 0.11 0.15 The correlation between the fund returns is 0.4. What is the expected return of the optimal risky portfolio?

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. What is the investment proportion in the minimum variance portfolio of stock fund? With the same set of assets...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. A) What is the investment proportion in the minimum variance portfolio of stock fund? B) Solve numerically for the...

A pension fund manager is considering three assets. The first is a stock fund, the second...

Suppose a fund has a portfolio with two risky assets; stock and bond. Annual expected return...

Suppose a fund has a portfolio with two risky assets; stock and bond. Annual expected return of stock is 0.15 and standard deviation of 0.10 and expected return of bond is 0.08 and standard deviation of 0.07. The correlation-coefficient between stock and bond is 0.2. while t-bill has annual return of 0.03 Draw the opportunity set with 25% increment in bond fund. Also indicate the variance minimizing weight for bond and stock Draw the optimal CAL line and calculate the...

There are two mutual funds, the first is an equity fund and the second is a...

There are two mutual funds, the first is an equity fund and the second is a long-term corporate bond fund. It is possible to borrow or to lend limitless sums safely at 1.25%pa. The data on the risky funds are as follows: Fund Expected return Expected standard deviation Equity Fund 8% 16% Bond Fund 3% 5% The correlation coefficient between the fund returns is 0.10 Draw the capital allocation line (CAL) of your portfolio on an expected return-standard deviation diagram....

pension fund manager is considering three mutual funds. The first is a stock fund, the second...

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 4.7%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 17 % 37 % Bond fund (B) 8 % 31 % The correlation between the fund returns is .1065. Suppose now that your portfolio must...

1. A pension fund manager is considering three assets. The first is a stock fund, the...

1. A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.19 0.25 Bond fund 0.09 0.13 The correlation between the fund returns is 0.17. An investor has a risk-aversion of 8. In her optimal complete portfolio (including stocks, bonds, and risk-free...

Subjects