Exercise 5-32 Algo A pension fund manager is considering three mutual funds for investment. The first one is a stock fun

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Exercise 5 32 Algo A Pension Fund Manager Is Considering Three Mutual Funds For Investment The First One Is A Stock Fun 1 (31.15 KiB) Viewed 41 times

Exercise 5 32 Algo A Pension Fund Manager Is Considering Three Mutual Funds For Investment The First One Is A Stock Fun 2 (39.72 KiB) Viewed 41 times

Exercise 5-32 Algo 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 6%. The inputs for the risky funds are given in the following table. Fund Stock fund Bond fund Expected Return 168 98 Expected return Variance The correlation coefficient between the stock and the bond funds is 0.4. a. What is the expected return and the variance for a portfolio that invests 50% in the stock fund and 50% in the bond fund? (Round Intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Standard Deviation 298 130 %
b. What is the expected return and the variance for a portfolio that invests 50% in the stock fund and 50% in the money market fund? [Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Expected return i Variance % %² c. Compare the portfolios in parts a and b with a portfolio that is invested entirely in the bond fund. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as Incorrect.) The portfolios in parts a and b have higher variances than the bond alone. 7 The portfolios in parts a and b offer better expected returns than the bond alone. 7 The portfolios in parts a and b have lower variances than the bond alone. 7 The portfolios in parts a and b offer lower expected returns than the bond alone.