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 rate of 8%. The probability distribution of the risky funds is as follows:
|
Expected return |
Standard deviations |
| Stock fund S |
16% |
38% |
| Stock fund B |
12 |
21 |
The correlation between the fund returns is 0.12.
a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Portfolio invested in the stock ______??
Portfolio invested in the bond ______??
a-2. What is the expected value and standard deviation of its rate of return? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Rate of return
Expected return ______ ??
Standard deviation _______??