As an equity analyst, you have developed the following return forecasts and risk estimates for two different

Question:

As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U):

a. If the risk-free rate is 3.9 percent and the expected market risk premium (i.e., E(RM) âˆ’ RFR) is 6.1 percent, calculate the expected return for each mutual fund according to the CAPM.
b. Using the estimated expected returns from Part a along with your own return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below theSML.

Mutual Funds
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...