Homework: Return and Risk
Length: 4 to 5 pages.
You have been appointed as a consultant for a Saudi hospital to assess securities risk. You expect your mutual fund portfolio to earn 11% this year. The beta of the portfolio is .8.
If the rate of return on risk-free assets is 4% and you think the rate of return on portfolio A will be 14%, then what expected rate of return should you get before deciding whether to invest more in the mutual fund?
Is this mutual fund attractive?
If the Treasury bill rate is 4% and the expected market return is 12%, then using CAPM - calculate the following:
1. What is the risk premium in the market?
2. What is the required return on an investment with a beta 1.5?
3. If a mutual fund B introduces B with beta. 8. Expected rate of return of 9.8% - is NPV positive?
4. If the market expects an 11.2% return from the X investment fund, then what is a beta?
How can you mix a mutual fund with a risk-free position in treasury bills or certificates of deposit to increase the expected rate of return on the portfolio while keeping the risk level the same or even reducing the risk?
As part of your evaluation of this homework, explain why a mutual fund needs to provide an expected rate of return that exceeds the expected stock market line so that investors find the fund attractive.
Format your homework according to the give formatting requirements:
1. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.