View the step-by-step solution to:

Question

# A pension fund manager is considering three mutual funds. The first is a stock />fund (S) (with expected return 20% and standard deviation 30%), the second is a long-term government and corporate bond fund (B) (with expected return 12% and standarddeviation 15%), and the third is a T-bill money market fund (with expected return 8%).The correlation between the stock fund (S) and the bond fund (B) is 1.0.1. With careful estimation and calculation, the manager found that the optimal pro-portions of each asset in the optimal risky portfolio are as follows:wS = 0.4516 and wB = 0.5484. Solve for the expected return and standard deviation of the optimalrisky portfolio.2. Suppose now the best feasible CAL available to the investor has a slope coefficientof 0.40. If you require that your portfolio on this best feasible CAL yield an expectedreturn of 14%, what is the standard deviation of your portfolio?3. What is the proportion invested in the T-bill fund and each of the two risky fundsto achieve an expected return of 14%? (use information from part 1 and part 2.)

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents