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 4%. The inputs for the risky funds are given in the following table.
Fund Expected Return Standard Deviation
Stock Fund 14% 26%
Bond Fund 8% 14%
The correlation coefficient between the stock and the bond funds is 0.20.
What is the variance of a portfolio that invests 60% in the stock fund and 40% in the money market fund?
Hint: Note that the correlation between the stock fund and the money market fund is zero, and the money market fund has no risk.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Let X be the portfolio invests in stock fund and Y be money market fund You need to find V( 0.6X+ 0.4 Y) V( 0.6X+ 0.4 Y)... View the full answer