Which of the following funds is the best choice for a well-diversified investor?

A) Balanced
B) Hedge
C) Growth

Question

Which of the following funds is the best choice for a well-diversified investor?

A) Balanced 
B) Hedge 
C) Growth

Quizplus · Accepted Answer

Each fund offers a different expected return, as well as a different level of risk. We can differentiate between them by comparing the Treynor Indexes for each fund:
Treynor Index = 11ea7fdb_fc0b_ab5e_a768_072edaf24f4a_TB2902_11 Treynor Index for Balanced = 11ea7fdb_fc0b_d26f_a768_879606867c76_TB2902_11 = 0.05339 or 5.339%
Treynor Index for Growth = 11ea7fdb_fc0b_d270_a768_c15c5119a9d1_TB2902_11 = 0.05517 or 5.517%
Treynor Index for Hedge = 11ea7fdb_fc0b_d271_a768_a91721062135_TB2902_11 = 0.05592 or 5.592%
The Hedge fund has the highest Treynor Index, and therefore generates the most return per unit of risk, making it the best investment.

Which of the Following Funds Is the Best Choice for a Well-Diversified