Problem 12-26 CAPM and Expected Return (LO2)

A mutual fund manager expects her portfolio to earn a rate of return of 8% this year. The beta of her portfolio is .8. Assume rate of return available on risk-free assets is 5% and you expect the rate of return on the market portfolio to be 10%.

a.	Calculate the expected rate of return that investors will demand of the portfolio.

Expected rate of return

%

b.

Should you invest in this mutual fund?

	No
	Yes