Problem Set #2 QUESTIONS

# The associated data file show the jobless rate and

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the associated data file) show the jobless rate and the delinquent loan percentage for 27 major real estate markets. a. Compute the correlation coefficient. Is there a positive correlation between the jobless rate and the percentage of delinquent housing loans? What is your interpretation? b. Show a scatter diagram of the relationship between jobless rate and the percentage of delinquent housing loans. Question 6 (Anderson, Sweeney, and Williams, 11th ed, 3.6.55) Morningstar tracks the total return for a large number of mutual funds. The following table (in the associated data file) shows the total return and the number of funds for four categories of mutual funds (Morningstar Funds500, 2008). a. Using the number of funds as weights, compute the weighted average total return for the mutual funds covered by Morningstar. b. Is there any difficulty associated with using the number of funds as the weights in computing the weighted average total return for Morningstar in part (a)? Discuss. What else might be used for weights? c. Suppose you had invested \$10,000 in mutual funds at the beginning of 2007 and diversified the investment by placing \$2000 in Domestic Equity funds, \$4000 in International Equity funds, \$3000 in Specialty Stock funds, and \$1000 in Hybrid funds. What is the expected return on the portfolio? 2

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