A portfolio manager summarizes the forecasted retums and other characteristics for two equity mutual funds. The forecast period is one year, the risk-free rate is 4%, and the expected market return is 10%. (a) Compare and contrast the performance of the two funds under the following circumstances, and in each case, justify your choices: i. When the selected fund will be the only risky investment held by the investor, ii. when the selected fund will be mixed with the market portfolio currently held by the investor, and iii. when the selected fund will be included in an actively managed fund of funds. (15 marks) (b) Calculate M2 (Modigliani-Modigliani measure) for the two mutual funds. Plot the diagrams for the M2 and discuss the results. Assume market retum volatility is 20%. A portfolio manager summarizes the forecasted retums and other characteristics for two equity mutual funds. The forecast period is one year, the risk-free rate is 4%, and the expected market return is 10%. (a) Compare and contrast the performance of the two funds under the following circumstances, and in each case, justify your choices: i. When the selected fund will be the only risky investment held by the investor, ii. when the selected fund will be mixed with the market portfolio currently held by the investor, and iii. when the selected fund will be included in an actively managed fund of funds. (15 marks) (b) Calculate M2 (Modigliani-Modigliani measure) for the two mutual funds. Plot the diagrams for the M2 and discuss the results. Assume market retum volatility is 20%