A Person Is Trying to Decide Which of Two Possible

question 141

Essay

A person is trying to decide which of two possible mutual funds to invest his money in. Let the random variable X represent the annual return for mutual fund A and let the random variable Y represent the annual return for fund B. It is known that the mean, µ, of X is 10.3% and the standard deviation, Ϭ, of X is 4.2%. It is also known that the mean, µ, of Y is 11.3% and the standard deviation, Ϭ, of Y is 7.2%. Which fund do you think the person would prefer if he is a short-term investor? Which fund do you think he would prefer if he is a long-term investor? Explain your thinking.

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Definitions:

Periodic Inventory Method

An accounting method that updates inventory levels and cost of goods sold at the end of a financial period rather than after each sale.

Voucher Payment

A method of payment where documentation is used to authorize and record a payment transaction.

Discount Period

The time frame in which a payment made towards a purchase is eligible for a discount, typically to encourage early payments.

Financial Statement

An official document detailing the financial transactions and status of a company, person, or different entity.