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

question 98

Essay

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 between 8% and 12%?

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Definitions:

Period-End Adjusting Entry

Journal entries made at the end of an accounting period to update accounts for accruals and deferrals that have not been recorded.

Sales Discounts

A reduction in the price of a product or service offered by a seller to encourage prompt payment by the buyer.

Periodic Inventory System

An inventory accounting system where goods are physically counted at specific intervals for financial reporting.

Perpetual Inventory Systems

A method of inventory management where inventory levels are updated in real-time after every sale or purchase transaction.