Question

4 Problem 7-4 A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and 25 points corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probablity distribution ofthe risky funds is as follows: Stock fund (5) Bond fund (B) 211 The correlation between the fund returns is 0.13 a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Print Portlolo invested in the stock Portfolo invested in the bond a-2. What is the expected value and standard deviation of its rate of return? (Do not round intermediate answers as decimals rounded to 4 places.) your Rate of Return Expected return Standard deviation

Answer 1

here , the formulas used to calculate solutions for part a-1) and a-2) can be seen in the above image

for these, we first need to calculate individual variances of the stock and bond and also the covariance between them, which have been calculated as can be seen from the above solution