Refer to image 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
Refer to image 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
Refer to image 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
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 your final answer to 4 decimal places.)
a-2. Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?
multiple choice 1
Riskier fund=
Less risky fund=
b-1. Calculate the probability of earning a return above 8.8% for each fund. (Round your final answer to 4 decimal places.)
b-2. Which mutual fund will you pick if your objective is to maximize the probability of earning a return above 8.8%?
multiple choice 2
Less risky fund=
Riskier fund=
rev: 05_21_2020_QC_CS-208894
Transcribed Image Text: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 your final answer to 4 decimal places.)
Probability
Riskier fund
Less risky fund
a-2. Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?
O Riskier fund
O Less risky fund
b-1. Calculate the probability of earning a return above 8.8% for each fund. (Round your final answer to 4 decimal places.)
Probability
Riskier fund
Less risky fund
0.1542
b-2. Which mutual fund will you pick if your objective is to maximize the probability of earning a return above 8.8%?
O Less risky fund
O Riskier fund
Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.
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