Question

Rosa Walters is considering investing $10,000 in two mutual funds. The anticipated returns from price appreciation and dividends (in hundreds of dollars) are described by the following probability distributions. Probabilities are already listed FUND A (0.4, 0.3, 0.3)

Mutual Fund A

Returns	Probability
−4	0.4
9	0.3
10	0.3

Mutual Fund B

Returns	Probability
−5	0.6
7	0.2
9	0.2

(a) Compute the mean and variance for Mutual Fund A.

mean	dollars
variance	dollars2

Compute the mean and variance for Mutual Fund B.

mean	dollars
variance	dollars2

Answer 1

x (returns)	P(x) (probability)	xP(x)	x²P(x)
-4	0.4	-1.6	6.4
9	0.3	2.7	24.3
10	0.3	3	30
Total	ΣP(x) (probability)=1	ΣxP(x)=4.1	Σx²P(x)=60.7

x (returns)	P(x) (probability)	xP(x)	x²P(x)
-5	0.6	-3	15
7	0.2	1.4	9.8
9	0.2	1.8	16.2
Total	ΣP(x) (probability)=1	ΣxP(x)=0.2	Σx²P(x)=41