We look at the situation where the market return is 13% (and you may assume the risk free rate is 3%):

a) Assume that the zero beta form of the CAPM is appropriate. What is the differential return for the funds shown above if the zero beta return is 4%.

b) For funds A & B (above), how much would the return on B have to change to reverse the ranking using the rewardtovariability measure?

1. Here are data on five mutual funds: Fund Retum Standard Deviation Beta A B D E 12 16 10 20 6 4 8 6 10 1.5 0.5 1.0 0.5