3. Suppose that youre given the following information of rates of return for three mutual funds in the stock market as assessed by your financial analyst in mutual fund. The "beta's" for these mutual funds are 1.21, 0.91, 0.84, for Fund A, Fund B, and Fund C, respectively. The market return on S&P 500 index is 12% on the average. Answer the following questions:

a) Let the risk-free rate be 2%, what are the required rates of return for Fund B, and Fund C? What model did you apply here? Is this model a market equilibrium condition?

b) What is the purpose of Capital Asset Pricing Model (CAPM)?What is the slope of Security Market Line (SML)? What does this slope represent?

c) If you want to combine Funds A, B, C altogether to form a portfolio. You want to have the portfolios beta to be equal to one where Fund B and Fund C together will constitute about of your initial wealth for investments. What weights should you assign to these funds?

Suppose that you're given the following information of rates of return for three mutual funds in the stock market as as