1. What is the contribution of security selection to the mutual fund's underperformance or overperformance?

1. (12 points) Suppose you use a call spread strategy on 12/10/2020, by buying a Facebook call option with the strike price of $285 at $10, and selling a Facebook call option with the strike price of $295 at $5. Both call options mature on 12/31/2020.

1. (4 points) If Facebook share is traded at $280 on 12/31/2020, what is your payoff for each of these two options? What is your total payoff? What is your profit/loss?

1. (4 points) If Facebook share is traded at $290 on 12/31/2020, what is your payoff for each of these two options? What is your total payoff? What is your profit/loss?

1. (4 points) If Facebook share is traded at $300 on 12/31/2020, what is your payoff for each of these two options? What is your total payoff? What is your profit/loss?

1. (11 points) Growth Inc. has an expected earnings of $4 per share for next year.The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Growth Inc. has a beta of 1.2. Investors use the CAPM to compute the market capitalization rate and use the constant-growth DDM to determine the value of the stock.