Question 1 (8 marks) A pension fund manager is considering three mutual funds. The first is...

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Question 1 (8 marks) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) Bond fund (B) 16% 12% 38% 21% The correlation between the fund returns is 0.12. a) What are the investment proportions in the minimum-variance portfolio of the two risky funds? b) What are the expected value and standard deviation of the minimum-variance portfolio rate of return? (4 marks) Question 1 (8 marks) A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) Bond fund (B) 16% 12% 38% 21% The correlation between the fund returns is 0.12. a) What are the investment proportions in the minimum-variance portfolio of the two risky funds? b) What are the expected value and standard deviation of the minimum-variance portfolio rate of return? (4 marks)