Weight of (S) = ((Standard Deviation of B)^2 -correlation *
Standard Deviation of S * Standard Deviation of B)/((Standard
Deviation of S)^2 + (Standard Deviation of B)^2 - 2 * correlation *
Standard Deviation of S * Standard Deviation of B)
=
((29%^2)-0.0517*35%*29%)/((35%^2)+(29%^2)-2*0.0517*35%*29%)=40.2093%
Weight of B =1-40.2093%=59.7907%
Expected Return of min variance portfolio
=40.2093%*15%+59.7907%*6%=9.62%
Standard Deviation = ((Weight of S * Standard Deviation of S)^2 +
(weight of B * standard Deviation of B)^2 + 2* Weight of S *
Standard Deviation of S * weight of B * standard Deviation of B *
correlation)^0.5
=(40.2093%*35%^2)+(59.7909%*29%)^2+2*40.2093%*59.7907%*35%*29%*0.0517)^0.5=22.89%
HEIDS A pension fund manager is considering three mutual funds. The corporate bond fund, and the...
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