Plz solve question (c) 2. The table below contains records of rates of return for a mutual fund F and for the marketportfolio during a 7 year period. These rates of return are denoted by RF (t) and RM (t),respectively (t = 1, 2, ..., 7).Yeart RF (t) RM (t)10.140.12-0.1-0.0730.190.24-0.08-0.0450.230.126.0.280.270.180.17Recall that the expectation and the variance of a random variable R based on the observedvalues R(1),..., R(n) of R are estimated respectively by:1ER=1> R(t), VarR =n - 1(R(t) – ER)";t=1t=1and the covariance of random variables R1 and R2 is estimated by1Cov(R1, R2)(R (t) – ER)(R2(t) – ER2).%3Dn - 1t=1(a) Compute the estimates of ER", ERM, Var(RM), Var(R"), oM, oF, Cov(R", RM)Cov(R" , RM)Var(RM)and the B for the mutual fund F, where B(b) Assuming that cash is a riskless asset whose rate of return r is constant and is equalto 3%, write the equation of the efficient frontier in the ox - mx plane. Write theequation of the security market line.(c) Evaluate the performance of the mutual fund F by finding out whether:(i) F yields better expected returns than those predicted by CAPM.(ii) F has a sufficiently high level of efficiency in the sense that< 3%where p is the Sharpe ratio of the fund and pM is the Sharpe ratio of themarket portfolio.

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(c) Evaluate the performance of the mutual fund F by finding out whether: (i) F yields better expected returns than those predicted by CAPM. pM – pF < 3% where p is the Sharpe ratio of the fund and pM is the Sharpe ratio of the (ii) F has a sufficiently high level of efficiency in the sense that | pM market portfolio.

(c) Evaluate the performance of the mutual fund F by finding out whether: (i) F yields better expected returns than those predicted by CAPM. pM – pF < 3% where p is the Sharpe ratio of the fund and pM is the Sharpe ratio of the (ii) F has a sufficiently high level of efficiency in the sense that | pM market portfolio.

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 8FPE

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