Connect 1 Semester Access Card for Fundamentals of Corporate Finance
Connect 1 Semester Access Card for Fundamentals of Corporate Finance
11th Edition
ISBN: 9781259289392
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 22, Problem 3M
Summary Introduction

Case summary:

Person X works for SA Company. He is bit confused on which investment option he must choose. Later, with the help of AS, financial service representative advice, X had decided to invest on diversified portfolio. He decided to invest 70% of his investment in equities, 5% in the money market funds and 25% in bonds. X also focused on equity investment on large cap stocks such as S&P 500 Index fund or big company stock funds. He takes advice of CG, who works in financial department in his company regarding equity investment. CG gave option of Vanguard 500 Index fund and equity mutual funds and asked to X to consider them for his investment. Also, CG asked X to consider the below graph before investment.

The graph represents the percentage of managed equity mutual funds beating the Vanguard 500 Index funds:

Connect 1 Semester Access Card for Fundamentals of Corporate Finance, Chapter 22, Problem 3M

To determine: What investment decision would person X make for the equity portion of 401(k) account.

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