Question

You are considering the risk-return of two mutual funds for investment. The relatively risky fund promises...

You are considering the risk-return of two mutual funds for investment. The relatively risky fund promises an expected return of 14.7% with a standard of 15.6%. The relatively less risky fund promises an expected return and standard deviation of 6.4% and 3.8%, respectively. Assume that the returns are approximately normally distributed. Using normal probability calculations and complete sentences, give your assessment of the likelihood of getting, on one hand, a negative return and on the other, a return above 10% with these funds. You may choose to use excel normal distribution formulas, but if you do, give the explicit formulas. Offer some remarks about your possible investment approach.

Calculations for the risker fund:

Calculations for the less risky fund:

Remarks:

Homework Answers

Answer #1

Z= (X - mean)/sd

Formulas

we see that risky asset has more probability of negative return, but also higher probability of more than 10 % return

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