Question
In: Statistics and Probability
You are considering two mutual funds as an investment. The possible returns for the funds are...
You are considering two mutual funds as an investment. The possible returns for the funds are dependent on the state of the economy and are given in the accompanying table.
State of the Economy Fund 1 Fund 2 Good 42 % 46 % Fair 18 % 25 % Poor −4 % −17 % You believe that the likelihood is 10% that the economy will be good, 40% that it will be fair, and 50% that it will be poor. a. Find the expected value and the standard deviation of returns for Fund 1. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) b. Find the expected value and the standard deviation of returns for Fund 2. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) c. Which fund will you pick if you are risk averse? Fund 1 Fund 2
Solutions
orchestra answered 1 year agoRelated Solutions
You are an investment manager considering two mutual funds. The first is an equity fund and...
You are an investment manager considering two mutual funds. The
first is an equity fund and the second is a long-term corporate
bond fund. It is possible to borrow or to lend limitless sums
safely at 1.25%pa. The data on the risky funds are as follows:
Fund
Expected return
Expected standard deviation
Equity Fund
8%
16%
Bond Fund
3%
5%
The correlation coefficient between the fund returns is 0.10
a You form a risky portfolio P that is equally weighted...
You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...
You are considering the risk-return profile of two mutual funds
for investment. The relatively risky fund promises an expected
return of 13% with a standard deviation of 17.9%. The relatively
less risky fund promises an expected return and standard deviation
of 3.3% and 5.4%, respectively. Assume that the returns are
approximately normally distributed. [You may find it useful
to reference the z table.]
a-1. Calculate the probability of earning a
negative return for each fund. (Round "z" value to
2...
You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...
You are considering the risk-return profile of two mutual funds
for investment. The relatively risky fund promises an expected
return of 13.7% with a standard deviation of 19.3%. The relatively
less risky fund promises an expected return and standard deviation
of 3.3% and 6.6%, respectively. Assume that the returns are
approximately normally distributed. a-1. Calculate the probability
of earning a negative return for each fund. (Round final answer to
4 decimal places.) Probability Riskier fund Less risky fund a-2.
Which...
You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...
You are considering the risk-return profile of two mutual funds
for investment. The relatively risky fund promises an expected
return of 11.7% with a standard deviation of 20.1%. The relatively
less risky fund promises an expected return and standard deviation
of 4.2% and 6.2%, respectively. Assume that the returns are
approximately normally distributed. [You may find it useful
to reference the z table.]
a-1. Calculate the probability of earning a
negative return for each fund. (Round "z" value to
2...
You are considering the risk-return of two mutual funds for investment. The relatively risky fund promises...
You are considering the risk-return of two mutual funds for
investment. The relatively risky fund promises an expected return
of 14.7% with a standard of 15.6%. The relatively less risky fund
promises an expected return and standard deviation of 6.4% and
3.8%, respectively. Assume that the returns are approximately
normally distributed. Using normal probability calculations and
complete sentences, give your assessment of the likelihood of
getting, on one hand, a negative return and on the other, a return
above 10%...
You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund...
You are considering the risk-return profile of two mutual funds
for investment. The relatively risky fund promises an expected
return of 7.2% with a standard deviation of 15.7%. The relatively
less risky fund promises an expected return and standard deviation
of 3.9% and 6%, respectively. Assume that the returns are
approximately normally distributed.
a-1. Calculate the probability of earning a negative return for
each fund. (Round final answer to 4 decimal places.)Probability:
Riskier fund and Less risky fund
a-2. Which...
A pension fund manager is considering three mutual funds for investment. The first one is a...
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 Expected Return Standard
Deviation
Stock Fund 14% 26%
Bond Fund 8% 14%
The correlation coefficient between the stock and the bond funds
is 0.20.
a)...
A pension fund manager is considering three mutual funds for investment. The first one is a...
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 5%. The inputs for the risky funds are
given in the following table.
Fund
Expected Return
Standard Deviation
Stock fund
13
%
33
%
Bond fund
6
%
16
%
The correlation coefficient between the stock and the bond...
Consider the following information about the annual returns of two investment funds. Investment fund A Investment...
Consider the following information about the annual returns of
two investment funds.
Investment fund A
Investment fund B
2015
27,5%
5,7%
2016
-18,9%
4,7%
2017
14,6%
7,8%
2018
-32,4%
-6,7%
2019
12,3%
5,3%
Which investment fund has achieved higher return over the
five-year period considered? Provide calculations for proof!
Mutual funds are managed by an investment company. The owners of the mutual fund are different...
Mutual funds are managed by an investment company. The owners
of the mutual fund are different from the shareholders. The
investment company owners do not, necessarily, invest in the mutual
funds they are managing. Discuss whether this situation results in
an incentive for the owners of the investment company to charge
higher fees to the mutual funds investors.
250 words
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