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 yields a sure rate of 5.5%. The probability distributions of the risky funds are:   

	Expected Return		Standard Deviation
Stock fund (S)	16	%	45	%
Bond fund (B)	7	%	39	%

The correlation between the fund returns is .0385.

Suppose now that your portfolio must yield an expected return of 14% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins 義Cut Σ AutoSum , ta copy." Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles ClearFilter Select Clipboard Font Cells dting Alignment A. standard deviation of portfolio 153 ANSa ơc 36.1409 % 36.14 % 154 155 ANS b b-1 proportion in T-bill 100%-90.92% ; 9.08% 156 79.29% b-2 proportion in stock 90.92% x 87.21% 157 proportion in bonds 11.63% 90.92% x 12.79% 158 159 160 161 162 163 164 165 166 167 168 169 170 11 1 ト I MİN VAR PORT | BEST CALL BİNOMIAL 2 TIME SINKING AMORTIZA Sheet2 ORDAN INSURANCESheet1