1. a.) Using the Capital Asset Pricing Model (CAPM), calculate whether the actual historical return on the Dukes' equity portfolio has underperformed, outperformed, or matches the expected return.n

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Equity Portfolio Mutual Fund A B с D Shares 1,000 2,000 6,000 200 Bond Portfolio Fair Market Value $65,000 $80,000 $120,000 $30,000 Basis $25,000 $80,000 $90,000 $45,000 Beta Standard Deviation 1.3 1.0 0.9 1.2 25% 15% 20% 18% Notes to equity portfolio: The portfolio of mutual funds has a correlation of 0.50 with the market. 2The portfolio has had a historical return of 14% with a volatility of approximately 18%, as measured by standard deviation. The portfolio is owned by Ryan with a TOD provision to Allison. 2003 The valu Case 10 | Ryan and Allison Duke 137 Economic Information They expect inflation to average 4% over the long-term. The historical return on the market has been 12% and is expected to continue. The market has had a standard deviation of 14%, which is expected to continue. T-bills are currently yielding 3%, while T-bonds are yielding 4%. Equity Portfolio Mutual Fund A B с D Shares 1,000 2,000 6,000 200 Bond Portfolio Fair Market Value $65,000 $80,000 $120,000 $30,000 Basis $25,000 $80,000 $90,000 $45,000 Beta Standard Deviation 1.3 1.0 0.9 1.2 25% 15% 20% 18% Notes to equity portfolio: The portfolio of mutual funds has a correlation of 0.50 with the market. 2The portfolio has had a historical return of 14% with a volatility of approximately 18%, as measured by standard deviation. The portfolio is owned by Ryan with a TOD provision to Allison. 2003 The valu Case 10 | Ryan and Allison Duke 137 Economic Information They expect inflation to average 4% over the long-term. The historical return on the market has been 12% and is expected to continue. The market has had a standard deviation of 14%, which is expected to continue. T-bills are currently yielding 3%, while T-bonds are yielding 4%.

Answer rating: 100% (QA)

The expected return on the portfolio is calculated based on the CAPM equation Re Rf beta Rm Rf Bet... View the full answer