Question
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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) | 18 | % | 35 | % | ||
| Bond fund (B) | 15 | 20 | ||||
The correlation between the fund returns is 0.12.
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
portfolio invested in the stock:
portfolio invested in the bond:
a-2. What is the expected value and standard deviation of its rate of return? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Expected return:
standard deviation:
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 1 year agoRelated Solutions
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that yields a sure rate of 5.5%. The probability distributions of
the risky funds are:
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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:
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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 sure rate of 5.8%. The probability distributions of
the risky funds are:
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A pension fund manager is considering three mutual funds. The first is a stock fund, the...
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20%
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