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 Expected Return Standard Deviation Stock fund ( S ) 16 32 Bond fund ( B ) 10 23 The correlation between the fund returns is 0 20 a What is the expected return and standard deviation for the minimum variance portfolio of the two risky funds b Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio c What is the Sharpe ratio of the best feasible CAL

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Question: 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,

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:

	Expected Return	Standard Deviation
Stock fund (S)	16%	32%
Bond fund (B)	10%	23%

The correlation between the fund returns is 0.20.

a. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?

b. Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.

c. What is the Sharpe ratio of the best feasible CAL?

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