Investing: Mutual Funds You dont need to be rich to buy a

Chapter , Problem 9

(choose chapter or problem)

Investing: Mutual Funds You dont need to be rich to buy a few shares in a mutual fund. The question is, how reliable are mutual funds as investments? This depends on the type of fund you buy. The following data are based on information taken from Morningstar, a mutual fund guide available in most libraries. A random sample of percentage annual returns for mutual funds holding stocks in aggressive-growth small companies is shown below. 1.8 14.3 41.5 17.2 16.8 4.4 32.6 7.3 16.2 2.8 34.3 10.6 8.4 7.0 2.3 18.5 25.0 9.8 7.8 24.6 22.8 Use a calculator to verify that s 2 348.43 for the sample of aggressive-growth small company funds. Another random sample of percentage annual returns for mutual funds holding value (i.e., market underpriced) stocks in large companies is shown below. 16.2 0.3 7.8 1.6 3.8 19.4 2.5 15.9 32.6 22.1 3.4 0.5 8.3 25.8 4.1 14.6 6.5 18.0 21.0 0.2 1.6 622 Use a calculator to verify that s 2 137.31 for value stocks in large companies. Test the claim that the population variance for mutual funds holding aggressive-growth small stocks is larger than the population variance for mutual funds holding value stocks in large companies. Use a 5% level of significance. How could your test conclusion relate to the question of reliability of returns for each type of mutual fund?