L12419 Financial Economics Problem Set 3 Problem 1 Assume that the following assets are correctly priced according to the security market line. Derive the security market line. What is the expected return of an asset with a Beta of 2? Rz 12% z_ 1.5 Problem2 Assume that over some period a security market line was estimated. The results are shown below: Ri 0.06+0.19p Assume that over the same period two mutual funds had the following results: Fund A Fund B What can be said about the fund performance? Actual return 10% Beta 0.8 Actual return :-15% Beta 1.2 Problem 3 Consider the security market line shown below. What is the market portfolio rate of return? What is the risk-free rate? R 0.04 +0.10B