Answer to Question #44236 in Statistics and Probability for Dion Lewis

Question

3.27 The Morningstar Top Fund lists at the Morningstar.com website give the mean yearly return and the standard deviation of the returns for each of the listed funds. As given by Morningstar.com on March 17, 2005, the RS Internet Age Fund has a mean yearly return of 10.93 percent with a standard deviation of 41.96 percent; the Franklin Income A fund has a mean yearly return of 13 percent with a standard deviation of 9.36 percent; the Jacob Internet fund has a mean yearly return of 34.45 percent with a standard deviation of 41.16 percent.

a. For each mutual fund, find an interval in which you would expect 95.44 percent of all yearly returns to fall. Assume returns are normally distributed.

b. Using the intervals you computed in part a, compare the three mutual funds with respect to average yearly returns and with respect to variability of returns.

c. Calculate the coefficient of variation for each mutual fund, and use your results to compare the funds with respect to risk. Which fund is riskier?