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 8%. 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. What is the standard deviation of your portfolio? b-1. What is the proportion invested in the T-bill fund? b-2. What is the proportion invested in each of the two risky funds?
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 8%. 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. What is the standard deviation of your portfolio? b-1. What is the proportion invested in the T-bill fund? b-2. What is the proportion invested in each of the two risky funds?
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
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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
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Expected Return |
Standard Deviation |
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Stock fund (S) |
16% |
32% |
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|
Bond fund (B) |
10% |
23% |
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|
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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.
- What is the standard deviation of your portfolio?
b-1. What is the proportion invested in the T-bill fund?
b-2. What is the proportion invested in each of the two risky funds?
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