a) Explain the empirical framework for the Capital Asset Pricing Model. Explain its components and discuss how an active portfolio manager can use a performance ratio obtained from these components to evaluate the performance of an active investment portfolio. (45% weighting) b) Assume you observe the following data. All variables are reported on an annualised basis: Average Standard Return Deviation Beta Stock A Stock B 10% 15% 9% 26% 0.6 1.8 Market index 11% 18% 1.0 Risk-free asset 5% 0% 0.0 (1) Calculate the Jensen's alpha values for stock A and stock B. Based on the calculated alpha values, discuss the position that you would like to take in each stock. (15% weighting) (ii) Suppose that an investment of 1 million is allocated between stocks A and B. A hedge fund requires you to pay a fee for the above investment. What is the maximum fee paid to the hedge fund for investing in each stock? Explain your answer. (10% weighting)