Pax World Balanced is a highly respected, socially responsible mutual fund of st

Question

Pax World Balanced is a highly respected, socially responsible mutual fund of stocks and bonds. Vanguard Balanced Index is another highly regarded fund that represents the entire U.S. stock and bond market (an index fund). The mean and standard deviation of annualized percent returns are shown below. The annualized mean and standard deviation are for a recent 10-years period. Pax World Balanced: x-9.58%; s 14.1390 Vanguard Balanced Index: x = 8.7090; s = 12.50% (a) Compute the coefficient of variation for each fund. (Round your answers to one decimal place.) Pax Vanguard cV If x represents return and s represents risk, then explain why the coefficient of variation can be taken to represent risk per unit of return. From this point of view, which fund appears to be better? Explain Since the CV is s/s2 we can say that the CV represents the risk per unit of return; the Pax fund appears to be better because the CV is smaller Since the CV is s/s we can say that the CV represents the risk per unit of return; the Vanguard fund appears to be better because the CV is smaller Since the CV is s/x we can say that the CV represents the risk per unit of return; the Pax fund appears to be better because the CV is smaller. Since the CV is s/x we can say that the CV represents the risk per unit of return; the Vanguard fund appears to be better because the CV is smaller Since the CV is s/x we can say that the CV represents the risk per unit of return; neither fund is better because the CV's are equal Since the CV is s/s2 we can say that the CV represents the risk per unit of return; neither fund is better because the cv's are equal (b) Compute a 75% Chebyshev interval around the mean for each fund. (Enter your answers to 2 decimal places.) Pax Vanguard Lower Limit Upper Limit Use the intervals to compare the two funds. As usual, past performance does not guarantee future performance Vanguard has a wider range of returns, with less downside, but also less upside Vanguard has a narrower range of returns, with more downside, but also more upside Vanguard has a narrower range of returns, with less downside, but also less upside Vanguard has a wider range of returns, with more downside, but also more upside

Explanation / Answer

SolutionA:

coefficient of variation=stddev/mean*100

=s/xbar*100

For Pax

CV=14.13/9.58*100

CV for PAX=147.5%

For

vanguard

CV=s/xbar*100

=12.50/8.70*100

CV for vanguard =143.7%

Since it is risk return

say return is 100

risk for PAX=147.5

risk for vanguard=143.7

PAX is riskier than vanguard as CV is high

Mark option D

since the CV is s/xbar we can say that the CV represents the risk per unit of return,the vanguard appears to be better because the CV is smaller

Solutionb:

1-1/2^2=1-1/4=1-0.25=0.75

0.75*100=75%

so k=2

For PAX

lower limit=mean-2sd=9.58-2*14.13= -18.68

For Vanguard

lower limit=mean-2sd=8.70-2*12.50=-16.3

Now we will find upper limits

For PAX

upper limit=mean+2sd=9.58+2*14.13= 37.84

For Vanguard

Upper limit=mean+2sd=8.70+2*12.50=33.7

vanguard has narrower range of returns with less downside but also less upside

OPTIONC

Pax Vanguard CV 147.5 143.7

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