A pension fund manager is considering three mutual funds. The first is a stock f
ID: 2761055 • Letter: A
Question
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 5.5%. The probability distributions of the risky funds are:
What expected return and standard deviation for the minimum-variance portfolio of the two risky funds?(Round your answers to 2 decimal places. Omit the "%" sign in your response.)
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 5.5%. The probability distributions of the risky funds are:
Explanation / Answer
Minimum variance portfolio is calculated as per below formula E (rs) 15 E (rb) 9 Std (S) 32 Std (B) 23 Correlation Coeff 0 Std (B) ^2 529 Cov (rs,rb) Corr Coeff*Std (S)*Std (B) 110.4 Std (S)^2 1024 Std (B)^2 529 2*Cov (rs,rb) 220.8 Wmin (S) Numerator 419 Denominator 1332 Wmin (S) 0.314217 Wmin (B) 0.685783 The minimum variance portfolio mean and standard deviation are E (rmin) 25.82795 % Stnd Dev (min) ws^2*sigma(s)^2 101.102 wb^2*sigma(b)^2 248.7878 2*ws*wb*cov(rs,rb) 47.57902 397.4687 Stnd Dev (min) 19.93662 %
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