1. Answer the following unrelated questions (a&b) regarding risk and return:

A) Based on the following data, compute the Beta for Zebra Corp.:

Month Market Return(%) Zebra Corp Return(%)

1 2.0 1.6

2 2.0 2.0

3 2.0 5.4

4 -2.0 -5.4

5 -2.0 -1.6

6 -2.0 -2.0

2. The CAPM (Capital Asset Pricing Model) is often used to evaluate the performance of professional money management. Suppose that Fraudulent Mutual Fund has a 12-year average annual return of 20%, with a beta of 2.2. The S&P 500 (market) index grew 14% per year over the same period, and the average Treasury Bill (risk-free) yield was 4%. The manager of the fund claims that the reason to buy his fund is that it has beaten the market by a margin of 6% per year. Evaluate the managers claim, and should buy the fund? (Hint: Do you believe that the mutual fund has outperformed the market if the CAPM is valid to represent the risk-return relationship, i.e. what return would you expect from this fund given its level of riskiness?)