3.0% Risk-Free Rate 12.0% Market Risk Premium 55 Four of your best friends from college are now mutual fund managers (maybe you 66 should have kept in touch after graduation). The risk-free rate was 3 percent and the 67 S&P 500 market risk premium was 12 percent for 2020. Using the Capital Asset 58 Pricing Model, provide the benchmark Security Market Line predicted return for 69 each fund and its over/under performance in 2020 and place the answers in the table below. 70 71 2020 Fund Manager Standard SML Predicted Over/Under BETA 72 Performance Deviation Return Performance 73 Devo 8% 0.55 11.0% 74 Grodge 19% 1.20 9.0% 75 MsMo 11% 0.50 3.0% 76 SpaceMan 10% 0.80 4.8% 77 78 a. Which of your friends has the fund with the highest market risk? The highest 79 total risk? B0 31 Highest Market Risk 32 33 Highest Total Risk B4 85 b. Compared to the SML benchmark, which of your friends had the best 86 performance? The worst? 87 88 Best Performance B9 90 Worst Performance 31 92 c. You have estimated that MsMo will provide a return of 9% for investors in 2021, 93 while the risk-free rate is 5 percent and the S&P 500 market risk premium is 9.0 percent for 2021. 94 Given these estimates, do you feel that MsMo will out-perform or under-perform the CAPM market benchmark? 25 26 Market Benchmark = 27 28 999 -00 Highlight One: Out-Perform Under-Perform _01 02 d. You have decided to invest 25% of your funds with each of your friends. What will 03 be the beta of your investment portfolio adopting this strategy