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 8%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 18% 09% Standard Deviation 27% 17% The correlation between the fund returns is 0.10. After constructing the optimal risky portfolio, you offer this risky portfolio to a client with a degree of risk aversion A = 3.1, assuming a utility function U = E(r) - 12A02. What proportion, y, of your client's complete portfolio should be invested in your fund? (Do not round intermediate calculations. Input your final answer as a percent, rounded to 2 decimal places i.e. 20.20%)
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 8%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 18% 09% Standard Deviation 27% 17% The correlation between the fund returns is 0.10. After constructing the optimal risky portfolio, you offer this risky portfolio to a client with a degree of risk aversion A = 3.1, assuming a utility function U = E(r) - 12A02. What proportion, y, of your client's complete portfolio should be invested in your fund? (Do not round intermediate calculations. Input your final answer as a percent, rounded to 2 decimal places i.e. 20.20%)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter13: Investing In Mutual Funds, Etfs, And Real Estate
Section: Chapter Questions
Problem 8FPE
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