Question

{Exercise 3.55}

Morningstar tracks the total return for a large number of mutual funds. The following table shows the total return and the number of funds for four categoriesof mutual funds (Morningstar Funds500, 2008).

a.Using the number of funds as weights, compute the weighted average total return for the mutual funds covered by Morningstar. (to 2decimals)
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b.Is there any difficulty associated with using the "number of funds" as the weights in computing the weighted average total return forMorningstar in part (a)? Discuss. What else might be used for weights?

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c.Suppose you had invested $10,000 in mutual funds at the beginning of 2007 and diversified the investment by placing $2000 in DomesticEquity funds, $4000 in International Equity funds, $3000 in Specialty Stock funds, and $1000 in Hybrid funds. What is the expected return on the portfolio? (to2 decimals)
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