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A pension fund manager is considering three mutual funds

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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 sure rate of 30%. The probability distributions of the risky funds are:

 

        Expected Return     Standard Deviation    
Stock fund (S)     12%        41%   
    Bond fund (B)        5%        30%    

 

The correlation between the fund returns is 0.18. What is the expected return and standard deviation of the optimal risky portfolio?

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