Question

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 8% with a standard deviation of 14%. The relatively less risky fund promises an expected return and standard deviation of 4% and 5%, respectively. Assume that the returns are approximately normally distributed.
a. Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?
b. Which mutual fund will you pick if your objective is to maximize the probability of earning a return above 8%?



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  • CreatedJanuary 28, 2015
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