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 money market fund that vields a sure rate of 4.7%. The probability distributions of the risky funds are: Expected Return 170 Stock fund (S) Bond fund (B) Standard Deviation 370 313 The correlation between the fund returns is 0.1065. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Answer is not complete. 10.70 % Expected return Standard deviation

Answer 1

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OPTIMAL RISKY POR VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Z AutoSum Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Sort & Find & Filter Select Paste в IU* Conditional Format Cell Insert Delete Format % Format Painter Clear Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing fox ВАЗ ВЕ AR AS AT AU AV AW AX AY AZ BA BB BC BD BE Por fehia 3 Minimum vaance 4 5 2 NA 6 7 2. 9 10 11 SD VARIANCE |(o (A) )A2 (o (B))^2 a (A) 1369.00 12 37.0000 13 31.0000 961.00 0.1065 14 r = 15 16 (AX13) - ((AX14)*(AU12)*(AU13))] (324- (0.11 34*18) (1156+324-(2*0.11* W(A) = 17 838.8445 [=(AX12)+(AX13) - (2*(AX14)*(AU12)*(AU13)] 2085.689 18 19 WEIGHTS W(A) 20 a-1 0.4022 40.22% WEIGHT OF stock fund W(B) = 59.78% 21 0.5978 WEIGHT OF bond fund Sheet2VCJORDAN Sheet3 Sheet4 П« Sheet1 Sheet5 MIN VAR PORT Sheet6 Sheet8 |ШI BEST CAL BINOMIAL 2 TIME SINKING AMORTIZA INSURANCE greta ferences 130% WA 09:44 ENG 05-11-2019

OPTIMAL RISKY POR VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins E AutoSum - Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Paste в IU* 090 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing fox BC30 ВЕ AR AS AT AU AV AW AX AY AZ BA BB BC BD BE 19 W(A ) W(B) 40.22% WEIGHT OF stock fund 20 WEIGHTS 0.4022 59.78% WEIGHT OF bond fund 21 0.5978 L 22 23 R(A) 24 17.00% R(B) 25 8.00% 26 27 ANSWERS Rp EXPECTED RETURN = W(A)*R(A) + W(B) R(B )= (0.4022)*(17%) + (0.5978)*(8%) = 11.62% 28 29 SDA 37 30 SDB 31 31 0.1065 r = 32 PORTFOLIO VARIANCE = (W(A))^2*(SD(A))^2 + (W(B))^2 *(SD(B) ) ^2 +2 W(A)*W(B)* SD(A)*SD(B)* r PORTFOLIO VARIANCE = [(0.4022)^2*(37)^2 +(0.5978)^2*(31)^2 + 2*(0.4022)*(0.5978) *(37)*(31)*(0.1065)] 33 34 35 PORTFOLIO VARIANCE = 623.6246 [SQRT(variance)] SDp 36 STANDARD DEVIATION = 24.97 % 37 Sheet2VCJORDAN TNSURANCE Sheet3 О- Sheet1 Sheet6 MIN VAR PORT Sheet8 BEST CAL Sheet4 Sheet5 BINOMIAL 2 TIME SINKING AMORTIZA greta ferences 130% WA 09:46 ENG 05-11-2019