Use the table below to answer the following question(s).
Below is the spreadsheet for a portfolio allocation model.

Assume that the distributions of life insurance annual return is uniform distribution with minimum 4% and maximum 6%, bond mutual funds annual return is normal with mean 7% and standard deviation 1%, stock mutual funds annual return is lognormal with mean 11% and standard deviation 4%.
-What is the coefficient of variation obtained from the simulation results for maximizing the total expected return? [Hint: Choose the approximate value.]
A)1.2451
B)0.4865
C)0.8917
D)0.1268

Question

Use the table below to answer the following question(s).
Below is the spreadsheet for a portfolio allocation model.
  
Assume that the distributions of life insurance annual return is uniform distribution with minimum 4% and maximum 6%, bond mutual funds annual return is normal with mean 7% and standard deviation 1%, stock mutual funds annual return is lognormal with mean 11% and standard deviation 4%.
-What is the coefficient of variation obtained from the simulation results for maximizing the total expected return? [Hint: Choose the approximate value.]
A)1.2451 
B)0.4865 
C)0.8917 
D)0.1268

Quizplus · Accepted Answer

The simulation results show that the best choice for maximizing the total expected return is to allocate 20% to life insurance, 40% to bond mutual funds, and 40% to stock mutual funds. This allocation results in a total expected return of 9.1975% with a coefficient of variation of 0.1268. This is the smallest coefficient of variation among the different allocation options, indicating the lowest risk relative to return.

Use the Table Below to Answer the Following Question(s)