Mid cap fund Large cap fund Return 16% 14% Expected return of the S&P 500 12% Beta 1.6 .8 Standard deviation of the market = 2.8 Standard Deviation 3.6 2.6 Risk-free rate = 4% Rank the three funds from highest to lowest in terms of reward to risk based on total risk.
Mid cap fund Large cap fund Return 16% 14% Expected return of the S&P 500 12% Beta 1.6 .8 Standard deviation of the market = 2.8 Standard Deviation 3.6 2.6 Risk-free rate = 4% Rank the three funds from highest to lowest in terms of reward to risk based on total risk.
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:### Risk and Return Analysis
The table below provides data for two types of investment funds, mid cap and large cap, along with market-related information.
| | Mid Cap Fund | Large Cap Fund |
|----------------------------|--------------|----------------|
| **Return** | 16% | 14% |
| **Beta** | 1.6 | 0.8 |
| **Standard Deviation** | 3.6 | 2.6 |
Additional Market Information:
- **Expected Return of the S&P 500**: 12%
- **Standard Deviation of the Market**: 2.8
- **Risk-free Rate**: 4%
### Problem Statement
Rank the three options (including the market) from highest to lowest in terms of reward to risk based on total risk.
### Options
1. **large cap, market, mid cap**
2. **mid cap, large cap, market**
3. **market, mid cap, large cap**
4. **large cap, mid cap, market**
5. **mid cap, market, large cap**
When considering investments, understanding the balance between return and risk is crucial. Utilize this data to guide investment decisions by evaluating the reward-to-risk ratio.
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