II. Capital Asset Pricing Model. Leah Vine has gathered the following information of three Mutual Funds (MFs). The beta risks of the MFs are presented in the following table. During the same 12-month investment period, the market returned 15% and the risk-free rate was 0.25%. Mutual Fund Beta risk Actual return Required rate of return (CAPM) X 1.00 15% Y 0.40 6% 3.10 46.5% Question answer 1. Based on the Capital Asset Pricing Please fill in the "required rate of return" column. (Showing work is optional.) Model (CAPM), calculate the required rate of return for each of the three MFs. 2. What is the market risk premium? (Please show your work.) Please first show the definition and then calculate the market risk premium. 3. Compare the actual 12-month ROR (Please show your work.) of MF Y and its required rate of return, comment on the performance of MF Y. 4. Compare the actual 12-month ROR (Please show your work.) of MF Z and its required rate of return, comment on the performance of MF Z. 5. Leah has decided to invest $7,500 in (Please show your work.) Mutual Fund X and $2,500 in Mutual Fund Y. What is her portfolio's beta exposure?

II. Capital Asset Pricing Model. Leah Vine has gathered the following information of three Mutual Funds (MFs). The beta risks of the MFs are presented in the following table. During the same 12-month investment period, the market returned 15% and the risk-free rate was 0.25%. Mutual Fund Beta risk Actual return Required rate of return (CAPM) X 1.00 15% Y 0.40 6% 3.10 46.5% Question answer 1. Based on the Capital Asset Pricing Please fill in the "required rate of return" column. (Showing work is optional.) Model (CAPM), calculate the required rate of return for each of the three MFs. 2. What is the market risk premium? (Please show your work.) Please first show the definition and then calculate the market risk premium. 3. Compare the actual 12-month ROR (Please show your work.) of MF Y and its required rate of return, comment on the performance of MF Y. 4. Compare the actual 12-month ROR (Please show your work.) of MF Z and its required rate of return, comment on the performance of MF Z. 5. Leah has decided to invest $7,500 in (Please show your work.) Mutual Fund X and $2,500 in Mutual Fund Y. What is her portfolio's beta exposure?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 5EP

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