A mutual fund manager expects her portfolio to earn a rate of return of 7% this

Question

A mutual fund manager expects her portfolio to earn a rate of return of 7% this year. The beta of her portfolio is .6. The rate of return available on risk-free assets is 5% and you expect the rate of return on the market portfolio to be 10%.

What expected rate of return would you demand before you would be willing to invest in this mutual fund?(Do not round intermediate calculations. Enter your answer as a whole percent.)

A mutual fund manager expects her portfolio to earn a rate of return of 7% this year. The beta of her portfolio is .6. The rate of return available on risk-free assets is 5% and you expect the rate of return on the market portfolio to be 10%.

Explanation / Answer

Beta, B 0.6 Return on Market, Rm 10% Risk Free Rate, Rf 5.00% Ke = Rf+ B(Rm-Rf) Ke = 5% + .6(10%-5%) Ke = 5% + 3% ke=8% No , Since mutual fund gives return of 7% whereas required return is 8%. Since required return is more than the expected return from the portfolio therefore fund is not attractive

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