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 6%. The probability distribution of the risky funds is as follows: E(r) st. dev. stock fund .24 .33 bond fund .14 .22 The correlation between the fund returns is 0.14. You require that your portfolio yield an expected return of 16%, 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.) 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.)
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
| E(r) | st. dev. | |
| stock fund | .24 | .33 |
| bond fund | .14 | .22 |
The correlation between the fund returns is 0.14.
You require that your portfolio yield an expected return of 16%, 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.)
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.)
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