You Have a Decision to Invest $10,000 in Any of Four

question 11

Essay

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favorable or unfavorable, and you estimate the percent returns over the next year. What is the maximin choice?

Distinguish between mutual funds, hedge funds, and equity funds in terms of performance and risk characteristics.

Understand the concept of comparison universe and its relevance to mutual fund performance evaluation.

Grasp the significance of serial correlation in mutual and hedge fund performance.

Evaluate the performance of mutual funds using Morningstar’s RAR method and understand its criteria.

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Definitions:

Parsimony

The principle that among competing hypotheses that predict equally well, the one with the fewest assumptions should be selected.

Propositions

Statements or assertions that express judgments or opinions that can potentially be proven true or false.

Theory

A system of ideas intended to explain something, based on general principles independent of the thing to be explained.

Frugality

The quality of being economical with resources or expenditure; practicing restraint in the use of materials and funds.