Find expected return and the variance of a portfolio

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Question: A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and the third is a money market fund. The money market fund yields a risk-free return of 4%. The inputs for the risky funds are given below.

219_Fund 1.png

The correlation coefficient between the stock and bond funds is 0.20.

a. What is the expected return and the variance o f a portfolio that invests 60% in the stock fund and 40% in the bond fund?

b. What is the expected return and the variance of a portfolio that invests 60% in the stock fund and 40% in the money market fund?

c. Compare the portfolios in parts a and b with a portfolio that is invested entirely in the bond fund.

Reference no: EM131460447

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