You Are Considering the Risk-Return Profile of Two Mutual Funds

question 117

Short Answer

You are considering the risk-return profile of two mutual funds for investment. The relatively risky fund promises an expected return of 9%, with a standard deviation of 12%. The relatively less risky fund promises an expected return and standard deviation of 5% and 8%, respectively.
A) Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?
B) Which mutual fund will you pick if your objective is to maximize the probability of earning a return of between 8% and 12%?

• A) Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?
• B) Which mutual fund will you pick if your objective is to maximize the probability of earning a return of between 8% and 12%?

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Definitions:

Horyuji

One of the oldest and most significant temples in Japan, known for its wooden architecture, ancient artifacts, and as a repository of Japanese art history.

Kondo

Japanese, “golden hall.” The main hall for worship in a Japanese Buddhist temple complex. The kondo contained statues of the Buddha and the bodhisattvas to whom the temple was dedicated.

Yayoi Period

An era in Japanese history, from around 300 BC to 300 AD, marked by the introduction of rice agriculture, metalworking, and new pottery styles.

Pit Dwellings

Ancient or prehistoric dwellings dug into the ground and often covered with roofs, providing insulation from the environment.