A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a Jong-erm government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock Fund (S) Bond Fund (B) a b. The correlation between the fund returns is -0.2 Calculate the following variables: Risk Premium of stock Fund Risk Premium of Bond Fund Variance of Stock Fund Variance of Bond Fund Covariance between Stock Fund and Bond Fund Write down the formulas you used to complete the table above 17% 10% W₁ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Tabulate the investment opportunities set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. From these options identify the portfolios closest to the minimum variance and optimal portfolios (do not use formulas)? Explain how to identify them. E(R₂) Sharpe W₁ 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 14% 0₂ Visual approximation of the portfolio closest to the minimum variance portfolio and explanation on how to find i

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a Jong-erm government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock Fund (S) Bond Fund (B) a b. The correlation between the fund returns is -0.2 Calculate the following variables: Risk Premium of stock Fund Risk Premium of Bond Fund Variance of Stock Fund Variance of Bond Fund Covariance between Stock Fund and Bond Fund Write down the formulas you used to complete the table above 17% 10% W₁ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Tabulate the investment opportunities set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10%. From these options identify the portfolios closest to the minimum variance and optimal portfolios (do not use formulas)? Explain how to identify them. E(R₂) Sharpe W₁ 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 14% 0₂ Visual approximation of the portfolio closest to the minimum variance portfolio and explanation on how to find i

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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