CHAPTER 10
A JOB AT S&S AIR
1. The biggest advantage the mutual funds have is instant diversification. The mutual funds have a
number of assets in the portfolio.
2. Both the APR and EAR are infinite. The match is instantaneous, so the number of periods in a year is
infinite.
4. This is a very open-ended question. The asset allocation depends on the risk tolerance of the individual.
However, most students will be young, so in this case, the portfolio allocation should be more heavily
weighted toward stocks. While the small-cap stock fund has the highest volatility, it also has the
highest historical return, and most likely, the highest expected future return. If the investor is willing
to accept the risk, they should receive a greater return from this fund.