Do bonds reduce the overall risk of an investment portfolio? Let \(x\) be a
random variable representing annual percent return for Vanguard Total Stock
Index (all stocks). Let \(y\) be a random variable representing annual return
for Vanguard Balanced Index \((60 \%\) stock and \(40 \%\) bond). For the past
several years, we have the following data (Reference: Morningstar Research
Group, Chicago). \(\begin{array}{llllllllrr}x: & 11 & 0 & 36 & 21 & 31 & 23 &
24 & -11 & -11 & -21 \\ y: & 10 & -2 & 29 & 14 & 22 & 18 & 14 & -2 & -3 &
-10\end{array}\)
(a) Compute \(\Sigma x, \Sigma x^{2}, \Sigma y\), and \(\Sigma y^{2}\).
(b) Use the results of part (a) to compute the sample mean, variance, and
standard deviation for \(x\) and for \(y\).
(c) Compute a \(75 \%\) Chebyshev interval around the mean for \(x\) values and
also for \(y\) values. Use the intervals to compare the two funds.
(d) Compute the coefficient of variation for each fund. Use the coefficients
of variation to compare the two funds. If \(s\) represents risks and \(\bar{x}\)
represents expected return, then \(s / \bar{x}\) can be thought of as a measure
of risk per unit of expected return. In this case, why is a smaller \(C V\)
better? Explain.