?(Security market? line)??James Fromholtz is considering whether to invest in a newly formed investment fund. The? fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the? fund's performance will hinge on how the national economy performs in the coming year. ? Specifically, he suggested the following possible?outcomes:??

. James has estimated the expected rate of return from this investment is

18.0018.00

percent. James wants to apply his recently acquired understanding of the security market line concept to his analysis.

a.??If the? risk-free rate of interest is currently

2.52.5

percent and the beta for the investment is

2.02.0?,

what is the slope of the security market line for the real estate mortgage security? investment?

b.??James is also considering the investment of his money in a market index fund that has an expected rate of return of

1010

percent. What is the slope of the security market line? (i.e., the? reward-to-risk ratio) for this investment? opportunity?

c.??Based on your analysis of parts a and b? above, which investment should James? take? ? Why?

a.??If the? risk-free rate of interest is currently

2.52.5

percent and the beta for the investment is

2.02.0?,

the slope of the security market line for the real estate mortgage security investment is ___% ?(Round to two decimal?places.)

i Data Table Fund Returns State of Economy Rapid expansion and recovery Modest growth Continued recession Falls into depression Probability 5% 45% 45% 5% 100% 35% 5% -100% Print Done