A pension fund manager is considering three mutual funds. The first is a stock fund, the...
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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 5.5%. The probability distributions of the risky funds are: Stock fund (S) Expected Return Standard Deviation 178 34% 11% 25% Bond fund (B) The correlation between the fund returns is 0.15. Suppose now that your portfolio must yield an expected return of 14% and be efficient, that is, on the best feasible CAL (i.e., the optimal risky portfolio). nstructor Tip: Calculate the Optimal Risky Portfolio weights and then create your complete portfolio (use CH5 concepts) based on the targeted return. Required: 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.) Stocks Bonds Proportion Invested 32.60% 67.40 % 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 5.5%. The probability distributions of the risky funds are: Stock fund (S) Expected Return Standard Deviation 178 34% 11% 25% Bond fund (B) The correlation between the fund returns is 0.15. Suppose now that your portfolio must yield an expected return of 14% and be efficient, that is, on the best feasible CAL (i.e., the optimal risky portfolio). nstructor Tip: Calculate the Optimal Risky Portfolio weights and then create your complete portfolio (use CH5 concepts) based on the targeted return. Required: 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.) Stocks Bonds Proportion Invested 32.60% 67.40 %
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