Question: Required information Section Break (8-12) Skip to question [The following information applies to the questions displayed below.] A pension fund manager is considering three mutual

Required information

Section Break (8-12)

Skip to question

[The following information applies to the questions displayed below.]

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) 15% 32%
Bond fund (B) 9% 23%

The correlation between the fund returns is 0.15.

Required:

a. What would be the investment proportions of your portfolio if you were limited to only the stock and bond funds and the portfolio has to yield an expected return of 12%?

b. Calculate the standard deviation of the portfolio which yields an expected return of 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)


Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!