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What is the standard deviation of your portfolio

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Question - 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 sure rate of 5.5%. The probability distributions of the risky funds are:

 

Expected Return

Standard Deviation

Stock Fund (S)

17%

34%

Bond Fund

11%

25%

The correlation between the fund returns is 0.15.

Suppose now that your portfolio must yield an expected return of 14% and be efficient, that is, on the best feasible CAL.

Required -

a. What is the standard deviation of your portfolio?

b-1. What is the proportion invested in the T-bill fund?

b-2. What is the proportion invested in each of the two risky funds?

Reference no: EM133025675

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