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A pension fund manager is considering three mutual funds. The first is a stock fund,...

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Accounting

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) 20% 35%
Bond Fund (B) 11% 15%

The correlation between the fund returns is 0.09.

a. What are the investment proportions in the minimum-variance portfolio of the two risky funds.

b. What is the expected value and standard deviation of its rate of return?

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