An investor wants to invest $300,000 in a portfolio of three mutual funds. The annual fund returns are normally distributed with a mean of 2% and standard deviation of 0.3% for the short-term investment fund, a mean of 5% and standard deviation of 3% for the intermediate-term fund, and a mean of 6.2% and standard deviation of 6% for the long-term fund. An initial plan for the investment allocation is 45% in the short-term fund, 35% in the intermediate-term fund, and 20% in the long-term fund. a. Use Analysis ToolPak, with a seed of 1, to develop a Monte Carlo simulation with 1000 trials to estimate the mean ending balance after the first year. Note: Round the final answer to two decimal places. Mean ending balance after the first year b. If the allocation is changed to 30% short-term, 55% intermediate-term, and 15% long-term, estimate the ending balance after the first year. Note: Round the final answer to two decimal places. Mean ending balance after the first year c. Compare the two investment strategies in parts a and b and choose the most appropriate answer from the following choices. O On average, the investment strategy in part a is more risky and yields a lower return. O On average, the investment strategy in part a is less risky and yields a higher return. On average, the investment strategy in part a is less risky but yields a lower return. O On average, the investment strategy in part a is more risky but yields a higher return.
An investor wants to invest $300,000 in a portfolio of three mutual funds. The annual fund returns are normally distributed with a mean of 2% and standard deviation of 0.3% for the short-term investment fund, a mean of 5% and standard deviation of 3% for the intermediate-term fund, and a mean of 6.2% and standard deviation of 6% for the long-term fund. An initial plan for the investment allocation is 45% in the short-term fund, 35% in the intermediate-term fund, and 20% in the long-term fund. a. Use Analysis ToolPak, with a seed of 1, to develop a Monte Carlo simulation with 1000 trials to estimate the mean ending balance after the first year. Note: Round the final answer to two decimal places. Mean ending balance after the first year b. If the allocation is changed to 30% short-term, 55% intermediate-term, and 15% long-term, estimate the ending balance after the first year. Note: Round the final answer to two decimal places. Mean ending balance after the first year c. Compare the two investment strategies in parts a and b and choose the most appropriate answer from the following choices. O On average, the investment strategy in part a is more risky and yields a lower return. O On average, the investment strategy in part a is less risky and yields a higher return. On average, the investment strategy in part a is less risky but yields a lower return. O On average, the investment strategy in part a is more risky but yields a higher return.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:An investor wants to invest $300,000 in a portfolio of three mutual funds. The annual fund returns are normally distributed with a mean
of 2% and standard deviation of 0.3% for the short-term investment fund, a mean of 5% and standard deviation of 3% for the
intermediate-term fund, and a mean of 6.2% and standard deviation of 6% for the long-term fund. An initial plan for the investment
allocation is 45% in the short-term fund, 35% in the intermediate-term fund, and 20% in the long-term fund.
a. Use Analysis ToolPak, with a seed of 1, to develop a Monte Carlo simulation with 1000 trials to estimate the mean ending balance
after the first year.
Note: Round the final answer to two decimal places.
Mean ending balance after the first year
b. If the allocation is changed to 30% short-term, 55% intermediate-term, and 15% long-term, estimate the ending balance after the first
year.
Note: Round the final answer to two decimal places.
Mean ending balance after the first year
c. Compare the two investment strategies in parts a and b and choose the most appropriate answer from the following choices.
O On average, the investment strategy in part a is more risky and yields a lower return.
O On average, the investment strategy in part a is less risky and yields a higher return.
On average, the investment strategy in part a is less risky but yields a lower return.
O On average, the investment strategy in part a is more risky but yields a higher return.
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