Calculate the expected return of the fund manager

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Question 1:

a) A fund manager has maintained an actively managed portfolio with a beta of 0.2. During the last year, the risk-free rate was 5% and major equity indices performed very badly, providing returns of about -30%. The fund manager generated a return of -10% and claims that in the circumstances his return was good. Calculate the expected return of the fund manager's portfolio and discuss whether he is right about his claim or not.

b) The expected return on the market is 12% and the risk-free rate is 7%. The standard deviation of the return on the market is 15%. One investor creates a portfolio on the efficient frontier with an expected return of 10%. Another investor creates a portfolio on the efficient frontier with an expected return of 20%. What are the respective standard deviations for these 2 portfolios' returns? (Hint: Both investor's portfolios are on the efficient frontier!)

Reference no: EM133069288

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