A) Which mutual fund has a higher relative return: Fund A with a return of 9.38%

Question

A)

  Which mutual fund has a higher relative return: Fund A with a return of 9.38% in a group with a mean return of17.3% and a standard deviation of 10% or Fund B with a return of12.42% in a group with a mean return of 16.7% and a standarddeviation of 8%?

B)

  Which expense statement for a client dinner has thelower relative cost: Dinner A that costs of $95.75 for adinner submitted by a salesperson with a mean expense cost of$77.50 and a standard deviation of $25 per dinner or Dinner B thatcosts $135.30 for a dinner submitted by a salesperson with a meancost of $117.50 and a standard deviation of $30 perdinner?

Explanation / Answer

Note : Relative value of a random variable (or anobservation from a group ) = ( x - ) / ......(i)    where : x = the observed value                = group mean    = standard deviation of the group . A)      Relative return of fund A= ( 9.38 - 17.3) / 10 = -0.792    ( using equation (i) ) Relative return of fund B= ( 12.42 - 16.7) / 8 = -0.535     ( using equation (i) ) since -0.792 < -0.535 , thefund B has greater relative value. B) using equation (i) from part A , we get :    relative cost of Dinner A = ( 95.75 - 77.50 ) /25 = 0.73    relative cost of Dinner B = ( 135.30 - 117.50 )/ 30 = 0.593        since 0.593 < 0.73 , relative cost of Dinner B is lower .

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