Consider investment in three mutual funds. The first is a stock fund, the second is a long-term government and corporate
Posted: Thu Apr 28, 2022 1:32 pm
Consider investment in 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 expected return and standard deviation of the risky funds
is as follows:
Expected Return
Standard Deviation
Stock fund (S)
14%
25%
Bond fund (B)
9%
12%
The correlation between the fund returns is .10
(You require that your portfolio yield an expected return of
16%, and that it be efficient, on the best feasible CAL. What is
the standard deviation of your portfolio? What is the proportion
invested in the T-bill fund and each of the two risky funds?
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 expected return and standard deviation of the risky funds
is as follows:
Expected Return
Standard Deviation
Stock fund (S)
14%
25%
Bond fund (B)
9%
12%
The correlation between the fund returns is .10
(You require that your portfolio yield an expected return of
16%, and that it be efficient, on the best feasible CAL. What is
the standard deviation of your portfolio? What is the proportion
invested in the T-bill fund and each of the two risky funds?