Answered: The following table shows the total…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 34CTQ: You and your friend have opened an account on E-Trade and have each decided to select five similar...

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The following table shows the total return and the number of funds for four categories of mutual funds. Excel File: data03-17.xlsx Type of Fund Number of Funds Total Return (%) Domestic Equity 9,191 4.65 International Equity 2,621 18.15 Specialty Stock 1,419 11.36 Hybrid 2,900 6.75 a. Using the number of funds as weights, compute the weighted average total return for these mutual funds. (to 2 decimals) b. Is there any difficulty associated with using the "number of funds" as the weights in computing the weighted average total return in part (a)? Discuss. What else might be used for weights? (i) Using "number of funds" as weights will only be a good approximation if the amount invested in various funds is approximately equal. The amount invested in each fund could be used for weights. (ii) Using "number of funds" as weights results in a good approximation regardless of the amount invested in various funds. There is no need to use a different weight. (iii) Using "number of funds" as weights will only be a good approximation if the amount invested in various funds is approximately equal. There is no other option that could be used for weights. (iv) Using "number of funds" as weights results in a good approximation regardless of the amount invested in various funds. The total amount invested in all funds could be used for weights. Choose the correct option. - Select your answer - c. Suppose you invested in this group of mutual funds and diversified the investment by placing in Domestic Equity funds, in International Equity funds, in Specialty Stock funds, and in Hybrid funds. What is the expected return on the portfolio? (to 2 decimals)

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