Question

Morningstar tracks the total return for a large number of mutual funds. The following table

Answer 1

Answer:

Kindly check explanation

Step-by-step explanation:

Given the following :

Type of Fund___No of fund(a) __total return%(b)

Domestic Equity____9191________4.65

International Equity__2621_______18.15

Specialty Stock______1419______11.36

Hybrid____________2900______6.75

A) weighted average :

Σa.b /Σa = (9191 * 4.65) + (2621 * 18.15) + (1419 * 11.36) + (2900 * 6.75) / (9191 + 2612 + 1419 + 2900)

= 126004.14 / 16122

= 7.8156643

B) Using the number of funds as weight poses a difficulty as it considers the cost of funds rater than it's value. Hence, the higher the cost, the higher the return. Value of funds would have been a better weight parameter.

C) c. Suppose you had invested $10,000 in mutual funds at the beginning of 2007 and

diversified the investment by placing $2000 in Domestic Equity funds, $4000 in International Equity funds, $3000 in Specialty Stock funds, and $1000 in Hybrid

funds. What is the expected return on the portfolio?

Expected return = Σ (p)*(x)

= (2000*4.65) + (4000*18.15) + (3000*11.36) + (1000*6.75) = $122,730