Question: Investing: Socially Responsible Mutual Funds

Pax World Balanced is a highly respected, socially responsible mutual fund of stocks and bonds. Vanguard Balanced Index is another highly regarded fund that represents the entire U.S. stock and bond market an index fund). The mean and standard deviation of annualized percent returns are shown below. The annualized mean and standard deviation are based on the years 1993 through 2002.

Pax World Balanced: \(\bar{X}=9.58%,\,\,s=14.05%\)

Vanguard Balanced Index: \(\bar{X}=9.02%,\,\,s=12.5%\)

a.) Compute the coefficient of variation for each fund. If x represents return and s represent risk per unit of return. From this point of view, which fund appears to be better? Explain.

b.) Compare a 75% Chebyshev’s interval around the mean for each fund. Use the intervals to compare the two funds. As usual, past performance does not guarantee future performance.