Please present neatly and box final answer.

Chapter 7 Homework

a-1.

a-2.

a-3.

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 rate of 8%. The probability distribution of the risky funds is as follows: Expected Return 20% 12 Standard Deviation 30% 15 Stock fund (5) Bond fund (B) The correlation between the fund returns is 0.10. What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Sharpe ratio 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 rate of 8%. The probability distribution of the risky funds is as follows: Expected Return Standard Deviation 20% 30% Stock fund (5) Bond fund 12 15 The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Standard deviation % b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places. Omit the "%" sign in your response.) T-bill fund Stocks Bonds Proportion Invested % % % Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock Expected Return A 10% B 15 Correlation = -1 Standard Deviation 5% 10 Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places. Omit the "%" sign in your response.) Risk-free rate %