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 4.6%. The probability distributions of
the risky funds are:
Expected Return | Standard Deviation | |||
Stock fund (S) | 16 | % | 36 | % |
Bond fund (B) | 7 | % | 30 | % |
The correlation between the fund returns is .0800.
Suppose now that your portfolio must yield an expected return of
14% 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 | % |