In: Finance
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 6%. The characteristics of the risky funds are as follows:
Expected Return Standard Deviation
Stock fund (S) 16 % 35 %
Bond fund (B) 12 15
The correlation between the fund returns is 0.13.
You require that your portfolio yield an expected return of 11%, and that it be efficient, that is, on the steepest feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)
b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.)
Money market fund (%) :
Stocks (%):
Bonds(%):