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 8%. The probability distribution of the risky funds is as follows: Expected ReturnStandard DeviationStock fund (s)20%30%Bond fund (b)1215The correlation between the fund returns is .10.Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 20%.

Expected return and standard deviation of a portfolio is calculated using the below formula: Here,…

Answered: A pension fund manager is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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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 8%. The probability distribution
of the risky funds is as follows:

	Expected Return	Standard Deviation
Stock fund (s)	20%	30%
Bond fund (b)	12	15

The correlation between the fund returns is .10.
Tabulate and draw the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 20%.

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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