Question

Need a help please. Thank you.

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 ylelds a sure rate of 5.2 %. The probability distributions of the risky funds are: Standard Expected Return Deviation Stock fund 13% 42% (s) Bond fund (B) 6% 36 % The correlation between the fund returns is .0222. Suppose now that your portfolio must yield an expected return of 12 % 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.) % Standard deviation

Answer 1

sol. As given in the question - Expected Return ELR) - 12%. of the portfolio Weights of the funds are as We l3 + wy6 & 12. Wх 13 + (1-Ww) 6 2.12. Wal3 + 6 - 66x = 12 In = 12-6 follows- u & n = .85. 15. Standard deviation of the portfolio - op - without wysy + 2 we wy er or ty. op / (85) (42) + (15) (36) + 2X-85x•15 X 1 .222 X 42 X 36. W NW .7225 X 1764 + 0.0225 X 1296 + 85.5943 1274.49 & 29.16 + 85.5943 1389.2443 37.27 % 2 i. Standard deviation I il. Op z 37.27%. - of the bortfolio