George Wants to Evaluate the Following Investment Options

question 2

Essay

George wants to evaluate the following investment options. He has collected the information below from the latest performance report for the VGT mutual fund. Use CAPM to approximate the expected return in each of the mutual fund categories. Assume that the risk- free investment is based on a 60- day U.S. Treasury Bill with a return of 3.85% per year. $$\begin{array} { | l | l | l | } \hline \text { Fund Name } & \text { Beta } & \text { Total Return, \% per year } \\\hline \text { A } & 0.96 & 15.5 \\\hline \text { B } & 1.09 & 16.14 \\\hline \mathrm { C } & 1.06 & 22.5 \\\hline\end{array}$$

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Definitions:

Stock Selection Return

The return achieved by an investor that can be attributed to the specific stocks chosen for investment, rather than the overall market movement.

Cross Border Fund

An investment fund that seeks to invest in assets located in countries other than where the fund is domiciled.

Benchmark

A standard or point of reference against which things may be compared or assessed, often used in investing to measure the performance of securities or portfolios.

Equity Index

A benchmark that measures the performance of a specific section of the stock market by tracking the price of selected stocks.