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:

Bureaucratic Control

The use of formal systems of rules, structures, job descriptions, and merit systems to create routine employee behavior that is less subject to the arbitrary whims of supervisors.

Project Plan

A formal document designed to guide the control and execution of a project, including detailed information about its scope, objectives, and resources.

Timeline

A graphical representation of a sequence of events arranged chronologically, often used to visualize historical, project, or life events.

Negotiating

The process of discussing something with someone in order to reach an agreement or compromise.