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Problem: Stockholder Risk Problem: Stockholder Risk &nb This table summarizes the performance of four mutual funds over a three-year period

. ______ A) What is the risk premium on the market portfolio (represented here by the Stock Market Index)?

______ B) According to the Capital Asset Pricing Model, what rate of return must the Aggressive Growth Fund earn to adequately compensate fund holders for market risk?

C) Suppose that you held only two investments in your portfolio, Treasury bills and the Aggressive Growth Fund. If you earned a return of 16% over the past year, ______

1. What proportion of your portfolio was invested in the AGF? ______

2. What was your portfolio BETA?

D) Consider two funds, the Emerging Markets Fund and the Value Fund. ______

1. Estimate alpha for each fund. (Alpha = actual return required return) ______ ______

2. On a return/risk basis, which fund has posted the most impressive performance? ______

3. Is either fund outperforming the market? If so, which one(s)?

E) Compare the Value Fund and the Aggressive Growth Fund. ______

1. Which fund is likely to perform better in a bear (declining) market? Briefly explain. ______

2. Which fund probably exposes its fund holders to larger capital gains taxes? Briefly explain.

3 yr avg P/E portfolio annualstandard return deviation BETA atio turnover % year US Treasury Bills Stock Market Index 4.5% 13.5% 1.9% 10.2% 59 11.0% 0.79 28.0 130 18 190 1.50 39.0 14.7% 11.6% 16.8% 20.1% 22.0% Emerging Markets Fund Global Stock Fund Value Fund Aggressive Growth Fund 16.5 0.84 1.33 34.0 18.7%