What is the standard deviation of returns for mutual fund

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Question - Consider the following capital market: a risk-free asset yielding 2.25% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 13.75% per year and the expected return on bonds is 3.75% per year. The standard deviation of stock returns is 40.00% and the standard deviation of bond returns 14.00%. The stock, bond and risk-free returns are all uncorrelated. What is the expected return on the mutual fund?

Using the data from problem, what is the standard deviation of returns for the mutual fund?

Using the data from problem, now, assume the correlation between stock and bond returns is 0.33 and the correlations between stock and risk-free returns and between the bond and risk-free returns are 0 (by construction, correlations with the risk-free asset are always zero). What is the standard deviation of returns for the mutual fund with this new higher correlation?

Reference no: EM132811430

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