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 5%. The probability distribution of the risky funds is as follows:
stock fund: expected return- 19% standard deviation- 32%
bond fund: expected return 12% standard deviation- 15%
The correlation between the fund returns is 0.11.
You require that your portfolio yield an expected return of 14%, 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.)
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.)
t-bills=_____%
stocks=____%
bonds=____%