SHOW FORMULA USED FOR EACH YELLOW BLANK!

SHOW FORMULA USED FOR EACH YELLOW BLANK!

Four of your best friends from college are now mutual fund managers (maybe you should have kept in touch after graduation). The risk-free rate was 3 percent and the S&P 500 market risk premium was 12 percent for 2020. Using the Capital Asset Pricing Model, provide the benchmark Security Market Line predicted return for each fund and its over/under performance in 2020 and place the answers in the table below. 2020 Fund Manager BETA Standard Deviation Over/Under SML Predicted Return Performance Performance 8% 0.55 3.0% Risk-Free Rate 12.0% Market Risk Premium Devo Grodge MsMo SpaceMan 19% 11% 10% 1.20 0.50 11.0% 9.0% 3.0% 4.8% 0.80 a. Which of your friends has the fund with the highest market risk? The highest total risk? Highest Market Risk Highest Total Risk b. Compared to the SML benchmark, which of your friends had the best performance? The worst? Best Performance Worst Performance c. You have estimated that MsMo will provide a return of 9% for investors in 2021, while the risk-free rate is 5 percent and the S&P 500 market risk premium is 9.0 percent for 2021. Given these estimates, do you feel that MsMo will out-perform or under-perform the CAPM market benchmark? Market Benchmark = Highlight One: Out-Perform Under-Perform d. You have decided to invest 25% of your funds with each of your friends. What will be the beta of your investment portfolio adopting this strategy? Beta = Four of your best friends from college are now mutual fund managers (maybe you should have kept in touch after graduation). The risk-free rate was 3 percent and the S&P 500 market risk premium was 12 percent for 2020. Using the Capital Asset Pricing Model, provide the benchmark Security Market Line predicted return for each fund and its over/under performance in 2020 and place the answers in the table below. 2020 Fund Manager BETA Standard Deviation Over/Under SML Predicted Return Performance Performance 8% 0.55 3.0% Risk-Free Rate 12.0% Market Risk Premium Devo Grodge MsMo SpaceMan 19% 11% 10% 1.20 0.50 11.0% 9.0% 3.0% 4.8% 0.80 a. Which of your friends has the fund with the highest market risk? The highest total risk? Highest Market Risk Highest Total Risk b. Compared to the SML benchmark, which of your friends had the best performance? The worst? Best Performance Worst Performance c. You have estimated that MsMo will provide a return of 9% for investors in 2021, while the risk-free rate is 5 percent and the S&P 500 market risk premium is 9.0 percent for 2021. Given these estimates, do you feel that MsMo will out-perform or under-perform the CAPM market benchmark? Market Benchmark = Highlight One: Out-Perform Under-Perform d. You have decided to invest 25% of your funds with each of your friends. What will be the beta of your investment portfolio adopting this strategy? Beta =