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 4%. The probability distribution of the risky funds is as follows:
|
|
Expected Return |
Standard Deviation |
| Stock fund (S) |
24 |
% |
30 |
% |
| Bond fund (B) |
12 |
|
19 |
|
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, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Standard deviation %
b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.Omit the "%" sign in your response.)
|
Proportion Invested |
| T-bill fund |
|
% |
|
| Stocks |
|
% |
|
| Bonds |
|
% |
|