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28 Sep 2019
Problem 1 Imagine that a randomly selected mutual fund has a fifty percent chance of beating the performance of the stock market in any given year. Furthermore, assume that a fund's chances of outperforming the market are independent of year to year.
a. What is the probability that a randomly selected mutual fund will outperform the market for five consecutive years?
b. What is the probability that a randomly selected mutual fund will outperform the market for ten consecutive years?
c. Out of 10,000 mutual funds, how many would you estimate will outperform the market for ten consecutive years?
d. Does the existence of a handful of market funds that outperform the market year after year demonstrate "proof " that certain fund managers are amazingly skillful in selecting stocks, or is there an alternative way to explain their success?
Problem 1 Imagine that a randomly selected mutual fund has a fifty percent chance of beating the performance of the stock market in any given year. Furthermore, assume that a fund's chances of outperforming the market are independent of year to year.
a. What is the probability that a randomly selected mutual fund will outperform the market for five consecutive years?
b. What is the probability that a randomly selected mutual fund will outperform the market for ten consecutive years?
c. Out of 10,000 mutual funds, how many would you estimate will outperform the market for ten consecutive years?
d. Does the existence of a handful of market funds that outperform the market year after year demonstrate "proof " that certain fund managers are amazingly skillful in selecting stocks, or is there an alternative way to explain their success?
Darryn D'SouzaLv10
28 Sep 2019
