A pension fund manager is considering three mutual funds. The
first is a stock fund, the...
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Finance
A pension fund manager is considering three mutual funds. Thefirst is a stock fund, the second is a long-term government andcorporate bond fund, and the third is a T-bill money market fundthat yields a sure rate of 4.0%. The probability distributions ofthe risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
10
%
32
%
Bond fund (B)
7
%
24
%
The correlation between the fund returns is .1250.
Suppose now that your portfolio must yield an expected return of8% and be efficient, that is, on the best feasible CAL.
a.
What is the standard deviation of your portfolio? (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)
Standard deviation
%
b-1.
What is the proportion invested in the T-bill fund? (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)
Proportion invested in the T-bill fund
%
b-2.
What is the proportion invested in each of the two risky funds?(Do not round intermediate calculations. Round your answersto 2 decimal places.)
Proportion Invested
Stocks
%
Bonds
%
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