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% 35% 12 15 The correlation between the fund returns is 0.13. a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
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% 35% 12 15 The correlation between the fund returns is 0.13. a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter13: Investing In Mutual Funds, Etfs, And Real Estate
Section: Chapter Questions
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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
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%
35%
12
15
The correlation between the fund returns is 0.13.
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? (Do not
round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Portfolio invested in the stock
Portfolio invested in the bond
return? (Do
a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate
not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Rate of Return
Expected return
Standard deviation](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F891fa1d2-ebf0-48d1-b56d-7e1140dd6e37%2F604dca1a-5124-4949-9767-c374d2b08c4d%2Fyvd01ac_processed.png&w=3840&q=75)
Transcribed Image Text: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%
35%
12
15
The correlation between the fund returns is 0.13.
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? (Do not
round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Portfolio invested in the stock
Portfolio invested in the bond
return? (Do
a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate
not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Rate of Return
Expected return
Standard deviation
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