3. (Slightly tricky). Consider two open-ended mutual funds A and B managed by different managers. Statistics for these two funds are given by the Table below. For simplicity, in this question, assume that the relevant benchmark market return is always zero. Therefore, if a fund delivers returns above zero consistently, it beats the market. (a) (2 points) Do these two managers have the skill to beat the market? Please answer "both have the skill", "only A has the skill", "only B has the skill', or "neither have the skill" (1 point). Please justify your answer with explicit reasoning (1 point). (b) As in lecture 16, assume that the ability of funds to beat the market is fixed in dollar terms. 1 i. (2 points) When ranking managers, we consider the person who can generate a higher dollar amount of market-beating returns to be "more skilled". Given this criterion, is manager A more or less skilled than manager B? ii. (3 points) Suppose investors chase after funds with positive post-fee returns by giving them more money to manage until post-fee returns become zero, as Berk-and-Green theory predicts. How much more investment will flow into funds A and B, respectively? 2