In: Finance
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows:
Expected ret. | std. dev. | |
Stock fund | 0.20 | 0.29 |
Bond fund | 0.11 | 0.15 |
The correlation between the fund returns is 0.4. What is the expected return of the optimal risky portfolio?