Table shows data on the returns over five 1-year periods for six mutual funds. A firms portfolio

Question:

Table shows data on the returns over five 1-year periods for six mutual funds. A firm€™s managers will assume that one of these scenarios will accurately reflect the investing climate over the next 12 months. The probabilities of each of the scenarios occurring are 0.1, 0.3, 0.1, 0.1, and 0.4 for years 1 to 5, respectively.
a. Develop a model for investors who are willing to risk a with a return no lower than 2%.
b. Solve the model in part (a) and recommend a allocation for the investor with this risk tolerance.
c. Modify the model in part (a) and solve it to develop a for an investor with a risk tolerance of 0%.
TABLE
RETURNS OVER FIVE 1-YEAR PERIODS FOR SIX MUTUAL FUNDS

d. Is the expected return higher for investors following the portfolio recommendations in part (c) as compared to the returns for the portfolio in part (b)? If so, do you believe the returns are enough higher to justify investing in thatportfolio?

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... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...