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 thirdi is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (8) Expected Return Standard Deviation 19% 34% 18 10 The correlation between the fund returns is 0.11. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Standard deviation Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested % % %

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 thirdi is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (8) Expected Return Standard Deviation 19% 34% 18 10 The correlation between the fund returns is 0.11. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Standard deviation Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested % % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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