Question
Over the past 10 years a mutual fund realized an average annual return of 16% per year. The riskless rate was 5% per year, and
Over the past 10 years a mutual fund realized an average annual return of 16% per year. The riskless rate was 5% per year, and the realized average return on the market portfolio of risky assets was 13% per year. The return on the mutual fund had a beta of 1.2. Suppose that going forward, the expected return on the market portfolio of risky assets is 10% per year, the riskless rate will be 5%, and the mutual fund's beta will still be 1.2. What is the expected return on the fund for the coming year assuming the fund's alpha is the same going forward as it was in the past?
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