What can you conclude about market efficiency

Reference no: EM133331746

Questions: Akins Aggressive Metal fudn is a concentrated mutual fund with a small number of holding, all in the heavy metals mining industry. Brian the portfolio manager is stock picking genius but believes the fund's existing portfolio is currently fairly priced he has therefore been in search of new investment ideas to create value of the fund investors.

He has spent the last 6 weeks combing through financial statements and reading footnotes about deferred taxes... Based on this research, he has identified what he believes to be a great new strategy_ Brian believes his new strategy will beat the market and return 10%. The strategy has a 24% standard deviation and a covariance of 0.010 within the market. Brian will invest 90% of the fund's $1.25B in assets in this new strategy, and the remaining 10% will be held in risk-free bonds. Assume the CAPM holds and ignores all taxes, fees, .and expenses.

You have the following forecasts:

Expected return on the S&P 500 over the next year = 0.12
Expected risk-free rate over the next year = 0.04
Expected standard deviation of returns for the S&P 50=0.180

What is the CAPM implied expected return on Brian's new portfolio

If Brian is right about the performance of this strategy, what can you conclude about market efficiency?

Reference no: EM133331746

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