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 rate of 4.3%. The probability distribution of the risky funds is as follows: Expected Return Standard Deviation Stock fund (S) 13% 34% Bond fund (B) 6 27
Answers
Answer:
Dekho to government is a long computations of a body fund telemoney mark of Pound rate 5.3 that is the probability to get a risk that is the formula probability is out total come is equals to event of total come 13% and 34 Blender fonts that is divided upon 13 is equals to 3.4 and second you could be questions 6 upon 26 is equals to main fire point 3 upon 13 is
Given:
Rate =4.3%
deviation stock fund 13% , 34%
Explanation:
Variance of stock = 0.34 × 0.34 = 0.1156
Variance of Bond = 0.27 × 0.27 = 0.0729
Covariance of Stock and Bond = r (S,B)×σS×σB=0.12×34×27=110.16
Calculation of Weights
Ws= σ2B−Cov(B,S)/(σ2S+σ2B−2Cov(B,S))
= [27² - 110.16] / [(34)² + (27)² - 2 × 110.16]
= 0.371
W B= 1− 0.371
= 0.629
Expected Return= E(S)×W(S)+E(B)×W(B)
= 13× 0.371+6×0.629
= 8.597 %
Standard Deviation=√(σ2S×W2S)+(σ2B×W2B)+(2×σS×σB×WS×WB×r (S,B))
=√(0.34×0.34×0.371×0.371)+ (0.27×0.27×0.629×0.629)+ (2×0.34×0.27×0.371×0.629×0.12)
= 0.21%
Answer = 0.21% , 8.597%