Bledsoe Bond Fund This fund invests in long$-$term corporate bonds issued by U$.$S$.-$domiciled companies. The fund is restricted

to investments in bonds with an investment$-$grade credit rating. This fund charges $1\mathrm{.}40$ percent in expenses.

Bledsoe Money Market Fund This fund invests in short$-$term, high$-$credit$-$quality debt instruments, which include Treasury bills.

As such, the return on the money market fund is only slightly higher than the return on Treasury bills. Because of the credit

quality and short$-$term nature of the investments, there is only a very slight risk of a negative return. The fund charges $\mathrm{.}60$

percent in expenses.

What advantages do the mutual funds offer compared to the company stock?

Assume that you invest $5$ percent of your salary and receive the full $5$ percent match from East Coast Yachts. What EAR do

you earn from the match? What conclusions do you draw about matching plans?

Assume you decide you should invest at least part of your money in large$-$capitalization stocks of companies based in the

United States. What are the advantages and disadvantages of choosing the Bledsoe Large$-$Company Stock Fund compared

to the Bledsoe S&P $500$ Index Fund?

The returns on the Bledsoe Small$-$Cap Fund are the most volatile of all the mutual funds offered in the $401(k)$ plan. Why would

you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also

has the highest expenses. Does this affect your decision to invest in this fund?

A measure of risk$-$adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the Page $315$

risk premium of an asset divided by its standard deviation. The standard deviation and return of the funds over the

past $10$ years are listed below. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and

standard deviation of the company stock will be $15$ percent and $65$ percent, respectively. Calculate the Sharpe ratio for the

company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? Assume the

risk$-$free rate was $2\mathrm{.}76$ percent.

What portfolio allocation would you choose? Why? Explain your thinking carefully.