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Suppose that you're running an investment fund that specializes in "beating the market," promising average excess returns higher than the average market excess return. The fund is currently invested in risky portfolio A with the following properties: Beta (of A) =0.7 and sigma (of A) = 4

i. Is the fund currently beating the Market? Explain.

ii. Now Consider including an addition Security, B, in your portfolio with the following properties: Beta (of B) = -0.4, (Sigma of B) = 2

Is there any way to include this security in a portfolio with A such that the average excess return on this new portfolio exceeds that of the market? Explain.

iii. What about the systematic risk of your new portfolio invested in both A and B? Is it greater or lower than that of the original portfolio invested only in A? Explain.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92355120

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