The following information is to be used to answer the following questions
Over the 11-year period,1997-2007, the Market Index (MI) had an average annual return of 13.5 percent and a standard deviation of 9 percent. The average annual return on Treasury bills was 6.75 percent. For four open-end mutual funds, some summary data are shown:

-The mutual fund with the lowest proportion of non-systematic risk was:
A) Fund 1.
B) Fund 2.
C) Fund 3.
D) Fund 4.

Question

The following information is to be used to answer the following questions
Over the 11-year period,1997-2007, the Market Index (MI) had an average annual return of 13.5 percent and a standard deviation of 9 percent. The average annual return on Treasury bills was 6.75 percent. For four open-end mutual funds, some summary data are shown:
 
-The mutual fund with the lowest proportion of non-systematic risk was:
A) Fund 1. 
B) Fund 2. 
C) Fund 3. 
D) Fund 4.

Quizplus · Accepted Answer

Non-systematic risk, also known as unsystematic risk, is unique to a specific company or industry and can be reduced through diversification. Mutual funds, by pooling investments in a variety of assets, inherently diversify and thus lower non-systematic risk. The mutual fund with the lowest proportion of non-systematic risk would be the one that is most diversified. Without specific data on the composition of each fund, it's impossible to determine which fund has the lowest non-systematic risk. However, if this question is based on a hypothetical scenario where Fund 3 is indicated to be the most diversified, then it would have the lowest proportion of non-systematic risk.

The Following Information Is to Be Used to Answer the Following