Question

T Rowe Price has two funds on offer: TRCBX (Blue Chip Growth Fund) and PRGIX (Growth and Income Fund). You are thinking about buying one of them and holding it in combination with the risk free asset. The risk free rate is 1%. Here is some information about the two funds. Expected return: TRCBX 11%, PRGIX, 5%. SD: TRCBX 5%, PRGIX, 4%. Alpha: TRCBX -3%, PRGIX 1%. Which fund do you buy? (A) TRCBX (B) PRGIX (C) It depends on your risk preferences (D) Not enough information to say

Answer 1

My Answer is A TRCBX as there is no much SD difference between trcbx and prgix which indicates  A fund with a high SD shows price volatility. A fund with a low SD tends to be more predictable,less volatile and reliable but compare to prgix it has only 1 pont difference

If we compare other parameters expected return is high in TRCBX compare to PRGIX and alos Alpa is more for TRCBX which means portfolio is divercified and there is less risk involved compared to PRGIX