Problem 7-06 As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Fund T Fund U Forecasted Return 7.0% 13.0 CAPM Beta 1.10 0.60 Using only the data shown in the preceding table: a. If the risk-free rate is 5.0 percent and the expected market risk premium (.e., E(R) - RFR) is 6.8 percent, calculate the expected return for each mutual fund according to the CAPM. Round your answers to two decimal places. Fund T: Fund U: 96 b. Choose the correct SML graph. Note that labels with asterisk denote estimated returns The correct graph is -Select dint linn A. Security market Line E(RI) 0.18 SML 0.16 0.14 Fund U Rm 0.12 0.1 0.08 Fund T 0.06 0.04 0.02 0.4 0.6 0.8 1.2 1.4 N1 0.2 1.6 1.8 -0.2 Beta B. Security market Line E(RI) 0.18 0.16 SML 0.14 0.12 Fund U Rm 0.1 0 0.00 *Fund T 0.06 0.041 0.02 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 1.6 1.8 Beta C. Security market Line E(RI) 0.18 SML 0.16 0.14 Rm 0.12 Fundo 0.1 0.08 "Fund T 0.06 0.04 0.02 0.2 0.4 toy 0.6 0.8 -0.2 1.4 1.2 1.6 1.8 Beta D. Security market Line E(RI) SML 0.18 0.16 0.141 Rm 0.12 Pund T 0.1 *Fynd U 0.08 0.06 0.04 0.02 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 1.6 1.8 2 Beta C. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued? Fund Evaluation -Select- U -Select