Problem: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 9%. The characteristics of the risky funds are as follow:
Expected Return Standard Deviation
Stock Fund (S) 20% 35%
Bond Fund (B) 11 15
The correlation between the fund returns is 0.09.
Solve for:
i) Portfolio invested in the stock
ii) Portfolio invested in the bond
iii) Expected Return
iv) Standard Deviation