2) Morningstar Top Funds lists provide the mean yearly return and the standard d

Question

2) Morningstar Top Funds lists provide the mean yearly return and the standard deviation of the listed funds. RS Internet Age Fund has a yearly mean return of 14.93% with a standard deviation of 182.96%. The Dave Poker Fund has a yearly mean return of 7.1% with a standard deviation of 93.90%. 

a) For each mutual fund find the range you would expect to find approximately 95.44% of all yearly returns to fall? Assume the returns are normally distributed. 

b) Calculate the coefficient of variation for each mutual fund. 

c) Which fund is riskier? Explain using the coefficient of variation. 

please show me step by step thanks !!!

Explanation / Answer

Answer:

2) Morningstar Top Funds lists provide the mean yearly return and the standard deviation of the listed funds. RS Internet Age Fund has a yearly mean return of 14.93% with a standard deviation of 182.96%. The Dave Poker Fund has a yearly mean return of 7.1% with a standard deviation of 93.90%.

a) For each mutual fund find the range you would expect to find approximately 95.44% of all yearly returns to fall? Assume the returns are normally distributed.

For normally distributed data, 95.44% fall within 2 standard deviation limits.

For RS Internet Age Fund, 2 sd limits are (14.93-2*182.96, 14.93+2*182.96)

=(-350.99, 380.85).

For Dave Poker Fund, 2 sd limits are (7.1-2*93.90, 7.1+2*93.90)

=(-180.7, 194.9)

b) Calculate the coefficient of variation for each mutual fund.

Cv for RS Internet Age Fund = (sd/mean)*100 = 182.96*100/14.93 = 1225.452

Cv for Dave Poker Fund= (sd/mean)*100 = 93.90*100/7.1 = 1322.535

c) Which fund is riskier? Explain using the coefficient of variation.

Dave Poker Fund is riskier because its coefficient of variation is larger.

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