A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Standard deviation Expected Return 24% 12 The correlation between the fund returns is 0.13. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested Standard Deviation 30% 19 % % % %
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Standard deviation Expected Return 24% 12 The correlation between the fund returns is 0.13. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Money market fund Stocks Bonds b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested Standard Deviation 30% 19 % % % %
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 12P
Related questions
Question
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long -term bond fund, and the third is a
Transcribed Image Text:A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third
is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows:
Stock fund (S)
Bond fund (B)
Standard deviation
Expected Return
24%
12
The correlation between the fund returns is 0.13.
You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)
Money market fund
Stocks
Bonds
b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal
places.)
Proportion
Invested
Standard Deviation
30%
19
%
%
%
%
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