Pax World Balanced is a highly respected, socially another highly deviation of a

Question

Pax World Balanced is a highly respected, socially another highly deviation of annualized percent returns are shown below. The annualized mean 1993 through 2002 (Source: Morningstar) ible mutual fund of stocks and bonds. Vanguard Balanced Index is arded fund that represents the entire u.S. stock and bond market (an index fund). The mean and standard and standard deviation are based on the years Vanguard Balanced Index: x = 9.01%; s 12.03% (a) Compute the coefficient of variation for each fund. (Enter your answers to the nea Vanguard CV 1.48 %11.31 ents return and s represents risk, then explain why the coefficient of variation can be taken to represent risk per unit of return. From this point of view, which fund appears to be better? Explain. CV is s/s? we can say that the CV represents the risk per unit of return; the Pax fund appears to be better because the CV is smaller Since the a, is s/s2 we can say that the CV represents the ris be better because the CV is smaller. k per unit of return; the Vanguard fund appears to Since the CV is s/k we can say that the CV represents the risk per unit of return; the Pax fund appears to be O Since the CVis s/x we can say that the CV represents the risk per unit of return; the Vanguard fund appears to O Since the cV is s/x we can say that the CV represents the risk per unit of return; neither fund is better because O Since the CV is s/s2 we can say that the CV represents the risk per unit of return; neither fund is better because better because the CV is smaller be better because the CV is smaller. the CV's are equal. the CVs are equal.

Explanation / Answer

CV = sd /mean

Pax

CV = 13.65/10.26 = 1.33040

Vanguard

CV = 12.03/9.01

= 1.33518

1.33040 < 1.33518

Pax is better

hence

option C) is correct

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