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 4.4%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 14% 34% Bond fund (B) 5% 28% The correlation between the fund returns is 0.0214. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds

Answer 1

Step-by-step explanation:

Expected Return stock fund (
`E_{rs`) = 14% = 0.14, Expected Return bond fund (
`E_{rb`) = 5% = 0.05, Standard Deviation stock fund (
`\sigma_s`) = 34% = 0.34, Standard Deviation bond fund (
`\sigma_b`) = 28% = 0.28, correlation (ρ) between the fund returns is 0.0214