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. Mutual Fund A Returns -5 7 10 Probability 0.4 0.2 0.4 Mutual Fund B Returns Probability -3 0.6 0.2 0.2 (a) Compute the mean and variance for Mutual Fund A. mean 340 dollars variance dollars2 Compute the mean and variance for Mutual Fund B. mean 120 dollars variance dollars (b) Which investment would provide Rosa with the highest expected return (the greater mean)? Mutual Fund A O Mutual Fund B (c) Which investment has the lesser element of risk (that is, which probability distribution has the smaller variance)? Mutual Fund A • Mutual Fund B

Answer 1

PONO Answer Given that, Mutual Fund A Returns I Probability 014 -5 0.9 lo 0.4 Mutual Fund B Returns 1 probability -3 016 0.2 Mutual fund. Ar Mean :- Mean: -5x0.4 + 70.2 + 10X0.4 .-2+1,4+4 3.3.4 x 100 (dollay5] = 340 dollars Mean - 340 dollars 1

PINO @ Variance Varex): zx?p- und zx?p=1-53x0.4+ (7)Px0.+(10)$0.4 : 25x014 + 49x0.2 +100x0.4 2 10+ 9.8 + 40 = 59.8 x 100|dellars? 598000 varex) = zsiped = 598006 - (340) = 598000 – 115600 3 482400 Ivariance - 482400 dollars? Mutual Fund Bin Mean = -3X016+6x0.2 +9x0.2 -1.8+12+ 1.8 a 1

egno = 12x100 [delays? - 120 Mean120) dollars. var (x): Exip-up Ex?p= (-3)X016+ [6)*x0.2+(938x0.9 - 9x0.6+ 36X0.2 +81x0.9 - 554 + 7.2 +16.2 = 28.8 x 100 dollars) = 288000 Var(x) = Extp-e - 288000-112038 - 288000 - 14400 = 273600 var(x) = 273600 Jollars Mutual fund a higher Returns since mean is more in Mutual Fund A. Mutual Fund B is as the lesser Element of risk , the poobability distribution is smalley variane. 1. c