Question: Morningstar tracks the total return for a large number of mutual funds. The following table shows the total return and the number of funds for four categories of mutual funds (Morningstar Funds 500. 2008).
a. Using the number of funds 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 510.000 in mutual funds at the beginning of 2007 and diversified the investment by placing $2000 in Domestic Equity funds, $4000 in International Equity funds. 53000 in Specialty Stock funds, and 51000 in Hybrid funds. What is the expected return on the portfolio?