I’m working on a finance question and need an explanation to help me learn.
A Pension Fund Manager is considering three mutual funds. The first is a stock fund, the second is a long-term government bond fund, and the third is a t-bill money market fund yielding 5.5%. The correlation between the fund returns is .15. The probability distribution of the risky funds are:
E( R )
STDEV
Stock Fund (S)
15%
32%
Bond fund (B)
9%
23%
First, tabulate and draw the investment opportunity set (meaning the different return and standard deviation combinations) of the 2 risky funds using proportions for the stock fund from 0% to 100% (and thus proportions of the bond fund from 100% to 0%) in increments of 20%.
What is the Return for the portfolio with 80% in the stock fund and 20% in the bond fund?
What is the Standard Deviation for the portfolio with 80% in the stock fund and 20% in the bond fund?
What is the Return for the portfolio with 20% in the stock fund and 80% in the bond fund?
What is the Standard Deviation for the portfolio with 20% in the stock fund and 80% in the bond fund?
What is the return of the Minimum Variance Portfolio?
What is the Standard Deviation of the Minimum Variance Portfolio?
What is the return on the Optimal Risky portfolio?
What is the Standard Deviation on the Optimal Risky portfolio?
