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 3.5%. The proability distributionsof the risky funds are: Expected ReturnStandard DeviationStock Fund (S)23%25%Bond Fund (B)12%18%*The correlation between the fund returns is .55.*What are the expected return, standard deviation, and sharpe ratio for the minimum-variance portfoilo of the two risky funds, and what would be the weights of the stock and bond fund for an optimal portfoilo?

Calculation of Expected Return, Standard Deviation, Sharpe Ratio, Weight of Stock and Weight of…

Answered: A pension fund manager is considering…

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

Problem 2FPE

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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 government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 3.5%. The proability distributionsof the risky funds are:

	Expected Return	Standard Deviation
Stock Fund (S)	23%	25%
Bond Fund (B)	12%	18%

*The correlation between the fund returns is .55.*

What are the expected return, standard deviation, and sharpe ratio for the minimum-variance portfoilo of the two risky funds, and what would be the weights of the stock and bond fund for an optimal portfoilo?

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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