Question: FINANCE 10 Question 6 Consider two mutual funds G and H with the following information: Fund Expected return Standard deviation G 10.5% 17.5% H 12.5%

FINANCE

10 Question 6 Consider two mutual funds G and H with the following information: Fund Expected return Standard deviation G 10.5% 17.5% H 12.5% 21% Beta 0.8 1.1 Moreover, the two mutual funds have a correlation coefficient of 0.7. Assume that the capital asset pricing model holds. 6.1 Determine the expected return of the market and the risk-free rate of return. 6.2 Determine the standard deviation of the market. [6]

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