The Manager of StarPerformer Mutual Fund Expects the Fund to Earn

question 83

Essay

The manager of StarPerformer Mutual Fund expects the fund to earn a rate of return of 12% this year.The beta of the fund's portfolio is .8.If the rate of return available on risk-free assets is 5% and you expect the rate of return on the market portfolio to be 15%,should you invest in StarPerformer? Can you create a portfolio with the same risk as StarPerformer Mutual Fund,but with a higher expected rate of return? Explain why in reality,a mutual fund must be able to provide an expected rate of return that is higher than that predicted by the security market line in order for investors to consider the fund an attractive investment opportunity.

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Definitions:

Brand Loyalty

The tendency of consumers to continuously purchase products from the same brand due to satisfaction, preference, or emotional connection.

Behavioural Learnings

The process of acquiring new behaviors or modifying existing ones through various forms of learning, such as conditioning or observation.

High Involvement

A state of strong interest and engagement with a product or issue, leading to thorough processing of information and careful decision-making.

Thoughtful Decision

A decision made after careful consideration of various factors and alternatives, often involving a deliberate thought process.