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You are on the board of the Springfield College Endowment Fund (SCEF), which is evaluating two potential managers for its investments: Mr. Monty Burns (MB)
You are on the board of the Springfield College Endowment Fund (SCEF), which is evaluating two potential managers for its investments: Mr. Monty Burns (MB) and Mr. Waylon Smithers (WS). The expected returns on portfolios MB and WS are 11% and 14%, respectively. The beta of MB is 0.8 while that of WS is 1.5. The T-Bill rate is 7%, while the expected return of the market index is 12%. The standard deviation of portfolio MB is 10%, while that of WS is 31%, and that of the index is 20% 1. Suppose SCEF currently holds a market index portfolio. Based on the data, would you add portfolios M B and/or WS to SCEF's mix of holdings? (Hint: check for under/over- pricing.) 2. If SCEF were ordered to invest only in T-Bills and one of the portfolios MB or WS, which portfolio should SCEF invest? Why
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