The American Association of Individual Investors publishes an annual guide to the top mutual funds (The Individual Investor's Guide to the Top Mutual Funds, 22e, American Association of Individual Investors, 2003). The total risk ratings for 29 categories of mutual funds are as follows.
Number of Fund
Total Risk Categories
Low ...............7
Below Average ..........6
Average .............3
Above Average ..........6
High ...............7
a. Let x = 1 for low risk up through x = 5 for high risk, and develop a probability distribution for level of risk.
b. What are the expected value and variance for total risk?
c. It turns out that 11 of the fund categories were bond funds. For the bond funds, seven categories were rated low and four were rated below average. Compare the total risk of the bond funds with the 18 categories of stock funds.