Over the previous 5 years, the median return for general stocks funds was as fol

Question

Over the previous 5 years, the median return for general stocks funds was as follows: Large Growth (LG) 9 % comma Small Growth (SG) 11.7 %, and Large Value (LV) 15.5 % Number .Suppose you have dollar-sign 30000 to invest in these three funds and decide to invest dollar-sign 4000 more in the Large Growth fund than in the Small Growth fund. Assume these funds will earn at the five year median level over the next year. (a) How much should you invest in each fund for one year if you want your average return to be 11 %? Carry out all calculations with four decimal places and round the final answer to two decimal places. (b) How much if you want a return of 12 %? Carry out all calculations with four decimal places and round the final answer to two decimal places. (c) How much if you want a return of 14 %? Carry out all calculations with four decimal places and round the final answer to two decimal places.

Explanation / Answer

Let the amounts invested in the Large Growth (LG) , Small Growth (SG) and the Large Value (LV) funds be $ x, y and z respectively. Then x +y +z = 30000…(1) Also, since the investment in the LG fund is more than that in the SG Fund by $ 4000, we have x = y + 4000 or, y = x - 4000…(2)

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