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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 5.4%. The probability distributions ofthe risky funds are:

    Expected Return   StandardDeviation
Stock fund (S)   15%   44%
Bond fund (B)   8%   38%

The correlation between the fund returns is 0.0684.

What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)

Answer & Explanation Solved by verified expert
4.1 Ratings (694 Votes)
First we will have to solve the mix for the risky optimalportfolio Let Ws be the proportion of stock fund in therisky optimal    See Answer
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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 5.4%. The probability distributions ofthe risky funds are:    Expected Return   StandardDeviationStock fund (S)   15%   44%Bond fund (B)   8%   38%The correlation between the fund returns is 0.0684.What is the Sharpe ratio of the best feasible CAL? (Do not roundintermediate calculations. Round your answer to 4 decimalplaces.)

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