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What is the expected return and the variance for a portfolio

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A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and the third is a money market fund. The money market fund yields a risk-free return of 4%.

The inputs for the risky funds are given in the following table.

Fund: Stock fund , Bond fund
Expected Return: 14%, 8%
Standard Deviation: 26% , 14%

The correlation coefficient between the stock and the bond funds is 0.20.

Problem a. What is the expected return and the variance for a portfolio that invests 60% in the stock fund and 40% in the bond fund? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Problem b. What is the expected return and the variance for a portfolio that invests 60% in the stock fund and 40% in the money market fund?

Reference no: EM132819342

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