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 rate of 8%. The probability distribution of the risky funds is 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.
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: