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 5.2%. The probability distributions of the risky funds are:
ER SD
Stock fund (S) 13% 42%
Bond fund (B) 6% 36%
The correlation between fund returns is .0222. What are the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?