E(R)

\ \ 5 ?\ (a) What is the Expected Return for a security with a Beta of 1.2?\

10.5(%)/(1.5)=7%

\ Expected return

=5%+1.2**7%=13.4%

\ (b) If a mutual fund manager also has a portfolio with a Beta of 1.2, and expects his portfolio\ to earn a rate of return of 10 percent, is it a good idea to invest? Why?

(a) What is the Expected Return for a security with a Beta of 1.2? 10.5%/1.5=7% Expected return =5%+1.27%=13.4% (b) If a mutual fund manager also has a portfolio with a Beta of 1.2, and expects his portfolio to earn a rate of return of 10 percent, is it a good idea to invest? Why