Question
In: Finance
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.
What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Stocks ________%
Bonds ________%
Solutions
Expert Solution
Portfolio Ret = weighted avg ret of securities in that portfolio.
| Stock | Weight | Ret | WTd Ret |
| Stock | y | 0.1500 | 0.15y |
| Bond | 1-y | 0.0800 | 0.08 - 0.08y |
| Portfolio Ret Return | 0.08 - 0.07y |
Thus 0.08 - 0.07y = 0.13
0.07y = 0.13 - 0.08
= 0.05
y = 0.05 /0.07
= 0.7143 I.e 71.43%
Investment in STocks= 71.43%
Investment in Bond = 28.57%
jeff jeffy answered 2 years agoRelated Solutions
A pension fund manager is considering three mutual funds. The first is a stock fund,...
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 5.5%. The stock fund has an expected return of 15% and a standard deviation of 23%. The bond fund has an expected return of 9% and a standard deviation of 23%. The correlation between the fund returns is.15. a) What...
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 5.5%. The probability distributions of
the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
16%
45%
Bond fund (B)
7%
39%
The correlation between the fund returns is 0.0385.
What is the expected return and standard deviation for...
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 5.5%. The probability distributions of
the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
16%
45%
Bond fund (B)
7%
39%
The correlation between the fund returns is 0.0385.
What is the expected return and standard deviation for...
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 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 0.1065.
What is the Sharpe ratio of the best feasible...
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)
17
%
30
%
Bond fund (B)
11
22
The correlation between the fund returns is 0.10.
a-1. What are the investment proportions...
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 5.8%. The probability distributions of
the risky funds are:
Expected Return Standard Deviation
Stock fund (S) 19% 48%
Bond fund (B) 9% 42%
The correlation between the fund returns is 0.0762.
What is the Sharpe ratio of the best feasible...
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 5.5%. The probability distributions of the risky funds are:Expected ReturnStandard DeviationStock fund (S)15%32%Bond fund (B)9%23%The correlation between the fund returns is .15 What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not...
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 4.1%. The probability distributions of
the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
11
%
33
%
Bond fund (B)
8
%
25
%
The correlation between the fund returns is .1560.
Suppose now that your portfolio...
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 5.9%. The probability distributions of
the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
20%
49%
Bond fund (B)
9%
43%
The correlation between the fund returns is 0.0721.
What is the expected return and standard deviation for...
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 5.0%. The probability distributions of
the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
11%
40%
Bond fund (B)
6%
20%
The correlation between the fund returns is 0.0500.
What is the Sharpe ratio of the best feasible...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Write a version of the binary search algorithm that can be used to search a string...
- Using the following reduction potentials: I2(s) + 2e- <---> 2I-(aq) E0 = 0.535 V I2 (aq)...
- Why are learnability and critical thinking crucial skills for the 21stcentury? And, how can you improve...
- Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff,...
- LUVE produces bracelets. Each band generates $460 in revenue and requires one ounce of gold as...
- (The following data apply to the next three questions.) Assume the following cost and revenue data...
- C# programming Create a classes called AlphabetDice that simulates a multi-sided dices with alphabet characters on...
ADVERTISEMENT