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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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