Question
You are provided with information on mutual fund performance. All Funds have an investment objective of outperforming the S&P 500 Index (symbol: SPX). None of
You are provided with information on mutual fund performance. All Funds have an investment objective of outperforming the S&P 500 Index (symbol: SPX). None of the MFs distribute dividends to their investors.
[Table 2] Mutual Fund Performance (Year 2019: 12/31/2018-12/31/2019)
| Average number of stocks in 2019 | Price as of 12/31/2018 | Price as of 12/31/2019 | Annual risk (stdev) | market risk () |
MF A | 500 | 100 | 128 | 30% | 1.00 |
MF B | 125 | 100 | 130 | 30% | 1.05 |
MF C | 12 | 100 | 100 | 40% | 1.40 |
MF D | 46 | 100 | 95 | 25% | 0.90 |
In 2019, S&P 500 Index gained 28% (total return); the annual risk-free rate is 2%.
Questions:
- (5 pts) Which one mutual fund has a negative total rate of return in 2019?
- (5 pts) Which one mutual fund most likely an S&P 500 Index Fund?
- (5 pts) Which one mutual fund is least diversified?
- (5 pts) Based on the Capital Asset Pricing Model (CAPM), which mutual fund should have the highest required rate of return in 2019?
- (10 pts) Based on the CAPM, which mutual fund performed the best in 2019?
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