A mutual fund manager expects her portfolio to earn a rate of return of 11% this

Question

A mutual fund manager expects her portfolio to earn a rate of return of 11% this year. The beta of her portfolio is .5. Assume rate of return available on risk-free assets is 4% and you expect the rate of return on the market portfolio to be 14%.

Calculate the expected rate of return that investors will demand of the portfolio.

Expected rate of return %

No

Yes

Calculate the expected rate of return that investors will demand of the portfolio.

Expected rate of return %

No

Yes

Explanation / Answer

1) The CAPM implies that the expected rate of return that investors will demand of the portfolio is:

r = rf + (rm rf) = 4% + .5 × (14% 4%) = 9%

2) Yes

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.