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Business, 16.06.2020 22:57 speresenko

Three Mutual Funds: Expected Return on Stock Fund (S) = 12%
Expected Return on Bond Fund (B) = 8%
Standard Deviation on Stock Fund (S) = 20%
Standard Deviation on Bond Fund (B) = 10%
Expected Return on T-Bill = 4%
Standard Deviation on T-Bill= ?
Correlation between S and B is 0.15
Formula: std2,p = (w2,1)(std2,1)+(w2,2)(std2,2)+(2w1w 2)Cov(r1r2)
Cov(r1r2)= (p1,2)(std1)(std2)
To construct a minimum-variance portfolio, one needs put 16% weights on Stock, and the rest on
Bond. To construct an optimal risky portfolio, one needs put 38% weights on Stock, and the rest
on Bond.
1) How to use risky assets only to construct an efficient portfolio P with a return of 10%?
What’s portfolio P’s standard deviation?
2) How to use risky assets and the risky free T-bill to construct an efficient portfolio Y with
a return of 10%? What’s portfolio Y’s standard deviation?

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Three Mutual Funds: Expected Return on Stock Fund (S) = 12%
Expected Return on Bond Fund (B)...
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