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 rate of 5.5%. The probability distribution of the risky funds is as follows: Expected return Standard Deviation Stock fund (S) 16% 32% Bond fund (B) 10 23 The correlation between the fund returns is 0.20. Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL. Required: a. What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund? What is the proportion invested in each of the two risky funds? Proportion Invested Stocks % Bonds %
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 rate of 5.5%. The probability distribution of the risky funds is as follows: Expected return Standard Deviation Stock fund (S) 16% 32% Bond fund (B) 10 23 The correlation between the fund returns is 0.20. Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL. Required: a. What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund? What is the proportion invested in each of the two risky funds? Proportion Invested Stocks % Bonds %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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
|
Expected return |
Standard Deviation |
|||||
|
Stock fund (S) |
16% |
32% |
|
|
|
|
|
Bond fund (B) |
10 |
23 |
The correlation between the fund returns is 0.20.
Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL.
Required:
a. What is the standard deviation of your portfolio?
- What is the proportion invested in the T-bill fund?
- What is the proportion invested in each of the two risky funds?
|
|
|
|
|
Stocks |
% |
|
|
Bonds |
|
% |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education