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You are trying to decide which mutual fund to invest in. There are many choices, so...

You are trying to decide which mutual fund to invest in. There are many choices, so you begin by analyzing just two funds, the Emerging Markets Fund (EMF) and the Small Stock Fund (SSF). Both funds have an expected return of 10%. EMF has a standard deviation or 20%, while SSF has a standard deviation of 22%. From this information can you conclude that either EMF or SSF is an efficient portfolio? Can you say that either portfolio is inefficient (i.e., does not maximize return for a given risk level?

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Answer #1

From this data we can understand that EMF has better risk to reward ratio than SSF fund.

Apart from this, we cant conclude either of them as efficient portfolio. For finding an efficient portfolio we need to have sufficiently large sample size of mutual funds and for all the funds expected return and std deviation should be calculated. After this the datas should be plotted in a graph and efficient portfolio is calculated by finding risk reward ratio of portfolios

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