Final answer:
Asset allocation accounts for a significant portion of the variability in a fund's returns, with studies pointing to about 90% to 100%. To assess a venture capitalist's investment scenarios, one would create probability distribution functions for each option. In the example of Alexx and Spenser's retirement fund with annual fees, Alexx ends up with more money after 30 years due to lower administrative costs.
Step-by-step explanation:
Studies on style analysis have shown that asset allocation alone explains a significant portion of the variance in fund returns. The specific percentage often cited from these studies is that asset allocation accounts for about 90% to 100% of the variability in a fund's returns over time, not the 10%, 30%, 50%, or 70% options provided. This insight is derived from a well-known study by Brinson, Hood, and Beebower (1986).
For the venture capitalist scenario, creating a probability distribution function (PDF) for each investment would involve listing the probabilities of different returns for the software company, hardware company, and biotech firm, based on the given chances of certain outcomes.
Regarding the question about retirement funds and administrative fees, Alexx would have more money than Spenser after 30 years due to the 0.25% difference in the annual fee charged by the retirement fund. To calculate the exact figure, you would compute the future value of the investments using the given rates of return, subtracting the fee where applicable.