Compare the performance of mf to the performance

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Reference no: EM133432366

Question: You are invested in the mutual fund "MF." MF has a volatility of 24%. You wish to know if investing in MF is better than investing on the Capital Market Line (CML). The market volatility is 20%. The risk-free rate is 2% and the market risk premium is 7%.

Complete the following tasks using excel:

a. To figure out whether MF beats a passive investment on the CML, you wish to compare the performance of MF to the performance of a particular portfolio on the CML. What is the relevant CML portfolio that you should compare MF to (Calculate the weights y and 1-y)?

b. What should be the expected return of the CML portfolio that you calculated in a.?

c. The MF fund considers a fundamental change in its investment strategy. It will expand into emerging markets to increase its returns and reduce its risk exposure. It considers an emerging market ETF which has a correlation of 0.1 with MF's assets and a standard deviation of 75%. MF will sell 20% of its assets to buy the ETF. What will be the new volatility of MF?

Reference no: EM133432366

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