Predictions of the future returns on three mutual funds

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Reference no: EM13927636

Choosing One Portfolio. The following table shows your predictions of the future returns on three mutual funds. Treasury Bills currently earn 4%. To invest all your wealth, you are limited to choosing a portfolio of only one of these three funds along with T-Bills. You are risk averse and able to borrow and short-sell. Which one of the three risky funds do you choose to invest in. Simple calculations or a graph may be helpful to illustrate your choices. Compare Fund A to Fund B. Which do you prefer? Explain.

T-Bills Fund A Fund B Fund C

E[rp ] 4% 16% 16% 10%

Delta pδp 25% 20% 12%

Beta pβp .90 1.00 0.60

Reference no: EM13927636

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