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What is the expected return and the variance for a portfolio

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Reference no: EM132850921

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 in the following table.

Fund: Stock fund, Bond fund

Expected Return: 14%, 8%

Standard Deviation: 26%, 14%

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

Required -

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

b. What is the expected return and the variance for 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: EM132850921

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