Question

In: Statistics and Probability

Consider three stock funds, which we will call Stock Funds 1, 2, and 3. Suppose that...

Consider three stock funds, which we will call Stock Funds 1, 2, and 3. Suppose that Stock Fund 1 has a mean yearly return of 8.00 percent with a standard deviation of 16.30 percent; Stock Fund 2 has a mean yearly return of 11.40 percent with a standard deviation of 18.80 percent, and Stock Fund 3 has a mean yearly return of 13.10 percent with a standard deviation of 8.90 percent.

(a) For each fund, find an interval in which you would expect 95.44 percent of all yearly returns to fall. Assume returns are normally distributed. (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)

  
Fund 1: [  ,  ]
Fund 2: [  ,  ]
Fund 3: [  ,  ]


(b) Using the intervals you computed in part a, compare the three funds with respect to average yearly returns and with respect to variability of returns.

  
  Fund 1 has the  (Click to select)  lowest  middle  highest   average and the  (Click to select)  middle  smallest  highest   variability.
  Fund 2 has the  (Click to select)  lowest  middle  highest  average and the  (Click to select)  middle  highest  smallest  variability.
  Fund 3 has the  (Click to select)  middle  lowest  highest   average return and the  (Click to select)  smallest  highest  middle   variability.


(c) Calculate the coefficient of variation for each fund, and use your results to compare the funds with respect to risk. Which fund is riskiest? (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

  
Fund 1: Coefficient of Variation =  %
Fund 2: Coefficient of Variation =  %
Fund 3: Coefficient of Variation =  %


Fund 1 is  (Click to select)  second riskiest  least risky  riskiest  , Fund 2 is  (Click to select)  least risky  riskiest  second riskiest  and Fund 3 is  (Click to select)  riskiest  second riskiest  least risky  .

Solutions

Expert Solution

There fore,

Hence , the Fund 1 is risker than the other two funds


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