You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows:   Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09   The correlation between the fund returns is 0.12. Determine the best feasible CAL and calculate its reward-to-volatility ratio.

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
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INV 1 6c

You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows:

 

Expected Return

Standard Deviation

Equities

.15

.30

Bonds

.06

.09

 

The correlation between the fund returns is 0.12.

  1. Determine the best feasible CAL and calculate its reward-to-volatility ratio.
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