Explain to your potential client what your fund offers

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Reference no: EM133264661

Question: Suppose you are a fund manager and you estimate that a passive portfolio (replicating the S&P500 index) has an expected rate of return of 13% and standard deviation of 25%. You are actively managing your portfolio and based on current data its expected return is 18%
and standard deviation of 28%. The risk free rate is 8%. You are preparing for a meeting with a potential client who is an EMH (Efficient Market Hypothesis) proponent and has a degree of risk aversion A = 2.5.

Explain to your potential client what your fund offers compared to a passive investment strategy and whether your business model is sustainable in the context of the EMH. Make sure to describe how markets would work under efficiency and how deviations from equilibrium are possible even in the absence of anomalies/irrationalities.

Reference no: EM133264661

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