You have been hired as a consultant for a Saudi Arabian hospital to assess the risk for securities. You expect your mutual fund portfolio A to earn a rate of 11% this year. The beta of the portfolio is .8.

1. If the rate of return on risk-free assets is 4% and you think the rate of return on the A portfolio will be 14%, then what expected rate of return would you have to have before deciding whether to invest more in the mutual fund?
2. Is this mutual fund attractive?
3. If the T-bill rate is 4% and the expected return for the market is 12%, then using the CAPM compute the following:
   1. A) What is the risk premium on the market?
   2. B) What would the required return be on an investment that has a beta of 1.5?
   3. C) If a mutual fund B with a beta of .8 offers an expected rate of return of 9.8% is the NPV positive?
   4. D) If the market expects to return 11.2% from Mutual Fund X, what is its beta?

• Analysis of the acceptable level of risk for each scenario.