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 th is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return 24% 12 Standard Deviation Stock Fund (S) 30% 19 Bond fund (B) 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, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?

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 th is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return 24% 12 Standard Deviation Stock Fund (S) 30% 19 Bond fund (B) 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, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?

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 2FPE

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