Erin Jones has $100,000 and, to diversify, she wants to invest equal amounts of $50,000 each in
Question:
She has used historical data from the four funds plus data from the market to determine the mean and standard deviation (normally distributed) of the annual return for each fund, as follows:
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The possible combinations of two investment funds are (1,2), (1,3), (1,4), (2,3), (2,4), and (3,4).
a. Use Crystal Ball to simulate each of the investment combinations to determine the expected return in 3 years. (Note that the formula for the future value, FV, of a current investment, P, with return r for n years in the future is FVn = Pr(1 + r)n) Indicate which investment combination has the highest expected return.
b. Erin wants to reduce her risk as much as possible. She knows that if she invests her $100,000 in a CD at the bank, she is guaranteed a return of $20,000 after 3 years. Using the frequency charts for the simulation runs in Crystal Ball, determine which combination of investments will result in the greatest probability of receiving a return of $120,000 orgreater.
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...
Step by Step Answer:
a In Crystal Ball include the parameters for each fund return distributi...View the full answer
