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 3.0%. The probability distributions of the risky funds are
What is the standard deviation of your portfolio?
What is the proportion invested in the T-bill fund
What is the proportion invested in each of the two risky funds?
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 3.0%. The probability distributions of the risky funds are:
Expected Return
Standard Deviation
Stock fund (S)
12
%
41
%
Bond fund (B)
5
%
30
%
The correlation between the fund returns is .0667.
Suppose now that your portfolio must yield an expected return of 9% and be efficient, that is, on the best feasible CAL.
a.
What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Standard deviation
%
b-1.
What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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 answers to 2 decimal places.)
Proportion Invested
Stocks
%
Bonds
%