What is the required rate of the return of the fund

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The manager of a mutual fund expects the fund to earn a rate of return of 11 percent this year. The beta of the mutual fund is 0.8. The rate of return on the risk-free T-bill is 4 percent and the expected rate of return on the S&P 500 index is 14 percent.

(a) What is the required rate of the return of the fund, according to CAPM?

(b) Should you invest in this mutual fund? (Explain whether this fund is overpriced or underpriced according to the security market line)

(c) How would you construct a portfolio with a beta of 0.8, from the risk-free T-bill and the S&P 500 index? What is your portfolio return?

Reference no: EM133114083

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