1. There are two mutual funds, A and B with the following information, R₁ Security The Market The Riskfree Bond 0.08 0.03 Mutual Fund A Mutual Fund B 0₁ 0.20 0.07 I 0.09 (iii) 0.12 0.30 Pim (i) (iv) (vi) (vii) (viii) 1.2 where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM holds, with fund A being efficient. (a) What are the answers to (i)-(v) above without doing any computation? (b) From given information, compute (vi) and (vii) in the table above. (c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by the CAPM] B₁ (ii)
1. There are two mutual funds, A and B with the following information, R₁ Security The Market The Riskfree Bond 0.08 0.03 Mutual Fund A Mutual Fund B 0₁ 0.20 0.07 I 0.09 (iii) 0.12 0.30 Pim (i) (iv) (vi) (vii) (viii) 1.2 where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM holds, with fund A being efficient. (a) What are the answers to (i)-(v) above without doing any computation? (b) From given information, compute (vi) and (vii) in the table above. (c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by the CAPM] B₁ (ii)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![1. There are two mutual funds, A and B with the following information,
R₁
0.08
0.03
0.07 I
0.09
Security
The Market
The Riskfree Bond
Pim
(i)
(iv)
(vi)
(viii)
where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM
holds, with fund A being efficient.
(a) What are the answers to (i)-(v) above without doing any computation?
(b) From given information, compute (vi) and (vii) in the table above.
(c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by
the CAPM]
O
0.20
(iii)
0.12
0.30
Mutual Fund A
Mutual Fund B
(ii)
(v)
(vii)
1.2](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F61d068a8-a79e-4cef-8442-ea778239765f%2F090c6aeb-d814-4d88-9226-015750964a7e%2Fod2w4mu_processed.png&w=3840&q=75)
Transcribed Image Text:1. There are two mutual funds, A and B with the following information,
R₁
0.08
0.03
0.07 I
0.09
Security
The Market
The Riskfree Bond
Pim
(i)
(iv)
(vi)
(viii)
where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM
holds, with fund A being efficient.
(a) What are the answers to (i)-(v) above without doing any computation?
(b) From given information, compute (vi) and (vii) in the table above.
(c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by
the CAPM]
O
0.20
(iii)
0.12
0.30
Mutual Fund A
Mutual Fund B
(ii)
(v)
(vii)
1.2
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