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    Expected return using CAPM

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    A mutual fund manager expects her portfolio to earn a rate of return of 11 percent this year. The beta of her portfolio is .8. If the rate of return available on risk-free assets is 4 percent and you expect the rate of return on the market portfolio to be 14 percent, should you invest in this mutual fund? Show your work and explain why or why not.

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    Solution Preview

    In order to make the decision, we need to calculate the required return based on the beta. Using the CAPM ...

    Solution Summary

    The solution explains how to calculate the expected return using the CAPM equation.