There are three stocks. The current price is denoted by P0, which is known. The next period price is denoted by P1, which is uncertain:

Stock P0 E[P1] Dividend STD(P1)

A 100 103 3 1 0.8 B 100 105 1 2 1.0 C 100 106 0 3 1.2

The prices of three stocks are independent. Suppose the tax rate on dividend is 40% and the tax on realized capital gain is 20%

(a) (5 points) Calculate the expected return of three stocks

(b) (8 points) Investment Company initiated two funds: (1) Fund M: the portfolio is equally weighted on three stocks. It has .1% of the asset value as the fee; (2) Fund T: the portfolio is equally weighted on stock B and C. Calculate the expected pre-tax and after-tax return separately for Fund M and T (capital gains need to be realized).

(c) (5 points) Calculate Treynor ratio of two funds assume the risk-free rate is 1.9%.