Question
A mutual fund focused on the financial services sector has 3 different stocks in its portfolio (Royal Bank, BMO and CIBC). Royal Bank, BMO and
A mutual fund focused on the financial services sector has 3 different stocks in its portfolio (Royal Bank, BMO and CIBC). Royal Bank, BMO and CIBCs stock have betas of 0.4, 0.6, and 0.8 respectively. The mutual fund invested one-third of its money equally in each stock. Each stock has a standard deviation of 30%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stock is zero. If market is in equilibrium, which of the following is correct?
The mutual funds expected return is equal to the expected return on CIBC. | ||
The mutual funds expected return is less than the expected return on Royal Bank. | ||
The expected return on BMO is less than the expected return on Royal Bank. | ||
The mutual fund is less volatile than the market index such as the TSX. |
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