The expected rate of return on market portfolio

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Assume that the expected rate of return on market portfolio is 14% but the market portfolio’s volatility is 22%. The risk-free rate of interest is 2.5%. 1. If XYZ mutual fund is expected to yield a 15% return with a 30% volatility, will you buy the fund or the market portfolio? Why or why not. 2. Suppose that Stock X is highly correlated with the market’s major indexes at least 95% of time. If the stock is 20% more volatile than the market average volatility, how much return should the stock generate to make the purchase worthwhile? Why or why not?

Reference no: EM131580912

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