PageQUESTIONS1. What advantages do the mutual funds offer compared to the company stock?2. Assume that you invest 5 percent of your salary and receive the full 5 percent match from S&S Air. What EAR do you earn fromthe match? What conclusions do you draw about matching plans?3. Assume you decide you should invest at least part of your money in large-capitalization stocks of companies based in the UnitedStates. What are the advantages and disadvantages of choosing the Bledsoe Large-Company Stock Fund compared to the BledsoeS&P 500 Index Fund?4. The returns on the Bledsoe Small-Cap Fund are the most volatile of all the mutual funds offered in the 401(k) plan. Why wouldyou ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also hasthe highest expenses. Does this affect your decision to invest in this fund?5. A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premiumof an asset divided by its standard deviation. The standard deviation and return of the funds over the past 10 years are listed in thefollowing table. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of thecompany stock will be 17 percent and 70 percent, respectively. Calculate the Sharpe ratio for the company stock. Howappropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? 10-YearStandardAnnual ReturnDeviationBledsoe S&P 500 Index Fund6.88%10.75%Bledsoe Small-Cap Fund9.2912.81Bledsoe Large-Company3.5610.99Stock Fund5.277.12Bledsoe Bond Fund6. What portfolio allocation would you choose? Why? Explain your thinking carefully.

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Answered: compared to the company stock?

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compared to the company stock?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 2FPE

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