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:

Descent Group

A social group whose members share a common ancestry; membership is derived through either the maternal or paternal line.

Patrilineal

A social system in which lineage, inheritance, and social identity are primarily traced through the male line.

Matrilineal

Pertaining to a social system in which lineage, inheritance, and social classification are traced through the mother's line rather than the father's.

Bilateral

Involving two sides or parties equally; for example, bilaterally symmetrical organisms, or agreements equally binding on both parties involved.