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 rate of 5.6%. The probability distribution of the risky funds is as follows:

	Expected Return	Standard Deviation
Stock fund (S)	17%	46%
Bond fund (B)	8	40

The correlation between the fund returns is 0.16.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)

Portfolio invested in the stock	%
Portfolio invested in the bond	%
Expected return	%
Standard deviation	%

rev: 03_08_2018_QC_CS-119112

Answer 1

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OPTIMAL RISKY PORTFOLIO VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut AutoSum - A Calibri 11 A = = V General A A = E E Wrap Text FMerce Merge & Center Center B I U E E s $ - % % 4.0 .00 8. Insert Delete Format D Font Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select C Alignment Number Cells E Copy Paste Format Painter Clipboard M113 А 97 98 99 в к L M N | 0 | PL Optimal risky Portfolio ErS) = E(rB) = rf = 100 5.6 O(S) 46 101 102 103 (B) rBS = 40 0.16 104 105 Ws. 1€(ms) - F 1 C - E (203) -4f | CouC 6,5). Elrs)-if | 8 + 8(26)-26.8 - Elns) - nf + 6(23) -rf.cov 8,5) CONCB,s) = ros. Iss 106 Cov(B,S) = 294.40000 107 108 109 110 Ws = (L98-L100) *(L102^2) - (L99-L100)*(L107) (L98-L100)*(L10242) + (L99-L100)*(L101^2) - (L98-L100+L99-L100)*(L107) 17533.44 19255.68 111 112 113 Ws WB = 0.9106 0.0894 91.06% 8.94% WEIGHT OF STOCK FUND WEIGHT OF BOND FUND 114 115 HEM Red BEST CAL BINOMIAL 2 TIME SINKING AMORTIZA Sheet2 VC JORDAN INSURANCE Sheet1 Sheet3 Sheet4 Sheets Sheeto greta MIN VAR PORT ferences 0 +) Sheets I THE TW 130% 6 * O ENG 2. 9 30-11-2019

OPTIMAL RISKY PORTFOLIO VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut = = = V General Wrap Text Fat Merce Merge & Center - Center AutoSum - A Fill 2 Sort & m Find & E E E s $ % % , , .0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Alignment Number Cells E F G H L M N O P Emp) = (ws) Cerrs)) + (ws) (Elnas) Calibri 11 A A E Copy Paste Format Painter BIU - D A Clipboard Font J134 Α I B C D 116 Expected return on portfolio: 117 118 119 120 121 E(rp) = 16.1950 % E(rp) = 16.20 % 123 variance of portfolio: 124 125 126 127 128 129 130 131 o?p= 1815.1664 % (E113*198) + (E114*199) 122 88 = (ws}(653² (W3) Coo? +2.0, W2 CovC3,5) (E113^2)*(L101^2)+(E114^2)*(L102^2)+2*(E113)*(E114)*(L107) 132 133 STANDARD DEVIATION 134 op = op = MIN VAR PORT ferences 42.6048 % 42.60 % BEST CAL BINOMIAL 2 TIME STANDARD DRVATION s 2 mois para que SINKING AMORTIZA Sheet2 VC JORDAN INSURANCE Sheet1 Sheet3 Sheet4 Sheets Sheeto greta HEM Red Sheets I 00 * 130% 0 + 2. 9 O ENG 30-11-2019