You are an analyst for a large public pension fund and you have been assigned the task of

evaluating two different external portfolio managers $(Y$ and $Z).$ You consider the following

historical average return, standard deviation, and CAPM beta estimates for these two managers

over the past five years

Additionally, your estimate for the risk premium for the market portfolio is $5\mathrm{.}00$ percent and the risk$-$free

rate is currently $4\mathrm{.}50$ percent.

a$.$ For both Manager $Y$ and Manager $Z,$ calculate the expected return using the CAPM. $(8$ points$)$

b$.$ Calculate each fund manager's average "alpha" over the five$-$year holding period. Show graphically

where these alpha statistics would plot on the security market line $($SML$).(12$ points$)$

c$.$ Explain whether you can conclude from the information in part $($b$)$ if $(1)$ either manager outperformed

the other on a risk$-$adjusted basis, and $(2)$ either manager outperformed market expectations in general.

$(10$ points$)$