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

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You are considering the risk-return profile of two mutual fundsfor investment. The relatively risky fund promises an expectedreturn of 7.2% with a standard deviation of 15.7%. The relativelyless risky fund promises an expected return and standard deviationof 3.9% and 6%, respectively. Assume that the returns areapproximately normally distributed.
a-1. Calculate the probability of earning a negative return foreach fund. (Round final answer to 4 decimal places.)Probability:Riskier fund and Less risky fund
a-2. Which mutual fund will you pick if your objective is tominimize the probability of earning a negative return?
Less risky or fund Riskier fund
b-1. Calculate the probability of earning a return above 8.3%for each fund. (Round final answer to 4 decimal places.)Probability Riskier fund and Less risky fund
b-2. Which mutual fund will you pick if your objective is tomaximize the probability of earning a return above 8.3%?
Riskier fund or Less risky fund

Answer & Explanation Solved by verified expert

4.1 Ratings (814 Votes)

Answer a1 For riskier is fund We first get the z score for the critical value As z x u s critical value x 0 mean u 72 standard deviation s 157 Thus z x u s 072157 0458598 Thus using a tabletechnology the left See Answer

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