The following table shows the betas and actual expected returns of 4 mutual funds in the market: Beta ● Fund 1 Fund 2 Fund 3 Fund 4 The return rate of riskfree asset is rf = 5% and the market portfolio exists. You are given that • Exactly two of the funds perform better than the market expectation (i.e. Actual expected return is strictly higher than market expected return) Exactly one of the funds performs worse than the market expectation. (a) Which of the funds lie on security market line (SML)? Explain your answer. (Hint 1: Try to draw a suitable figure and visualize the problem.) (Hint 2: Which performance indexes will be useful in this context?) Actual expected return 7.2% 10% 12% 16% 0.5 0.8 1.4 1.9

The following table shows the betas and actual expected returns of 4 mutual funds in the market: Beta ● Fund 1 Fund 2 Fund 3 Fund 4 The return rate of riskfree asset is rf = 5% and the market portfolio exists. You are given that • Exactly two of the funds perform better than the market expectation (i.e. Actual expected return is strictly higher than market expected return) Exactly one of the funds performs worse than the market expectation. (a) Which of the funds lie on security market line (SML)? Explain your answer. (Hint 1: Try to draw a suitable figure and visualize the problem.) (Hint 2: Which performance indexes will be useful in this context?) Actual expected return 7.2% 10% 12% 16% 0.5 0.8 1.4 1.9

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.9P

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please explain clearly
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Need qualitiey answer Define a rational risk aversive investor.
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