# 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 sure rate of 5.3%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 14 % 43 % Bond fund (B) 7 % 37 % The correlation between the fund returns is .0459. Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Proportion invested in the T-bill fund % b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Proportion Invested Stocks % Bonds %

To perceive the party of influence to endue in hoard 1 that will result in the foolhardy portfolio with

the utmost Sharpe kindred the forthcoming formula to indicate the gravity of claim in foolhardy portfolio should be used

 Where Bond E[R(d)]= 7.00% Stock E[R(e)]= 14.00% Bond Stdev[R(d)]= 37.00% Stock Stdev[R(e)]= 43.00% Var[R(d)]= 0.1369 Var[R(e)]= 0.1849 T bil Rf= 5.30% Correl Corr(Re,Rd)= 0.0459 Covar Cov(Re,Rd)= 0.0073 Therefore W(*d)= 0.1755 W(*e)=(1-W(*d))= 0.8245 Expected render of foolhardy portfolio= 12.77% Foolhardy portfolio std adulteration = 36.34%
 Desired render= 12%
 = tbill render*correlation endueed in tbill+foolhardy portfolio render *(1-return*correlation endueed in tbill) 0.12=0.053*Correlation endueed in Tbill+0.1277*(1-Proportion invested in Tbill) Correlation endueed in Tbill (response b.1)= (0.1277-0.12)/(0.1277-0.053) =0.1 correlation endueed in foolhardy portfolio = 1-*correlation endueed in tbill =0.9 Correlation endueed in hoard capital (response b.2)=correlation endueed in foolhardy portfolio *gravity of hoard capital =0.74 Correlation endueed in tie capital (response b.2)=correlation endueed in foolhardy portfolio *gravity of tie capital =0.1579 std adulteration of portfolio (response a) = std of foolhardy portfolio*proportion invested in foolhardy portfolio 0.9*0.3634=32.71%