A mutual fund manager expects her portfolio to earn a rate of return of 9% this year. The beta of her portfolio is 0.8. If the rate of return available on risk free assets is 4% and you expect the rate of return on the market portfolio to be 11%.

a)Should you invest in this mutual fund? Show your work. (2 marks)

b)Suppose you want to create portfolio with the same risk as the fund manager's portfolio above, however you only want to invest in T-Bills and a stock index mutual fund (with the same risk as the market portfolio). How much of your portfolio must be invested in each security? (2 marks)

c)What is the rate of return on this new portfolio (from part b)? (1 mark)