Problem 7-03 You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return, standard deviation, and CAPM beta estimates for these two managers over the past five years: Portfolio Actual Avg. Return Standard Deviation Beta Manager Y 9.90% 12.00% 1.40 Manager Z 6,30% 7.20% 0.70 Additionally, your estimate for the risk premium for the market portfolio is 3.00 percent and the risk-froe rate in currently 4.50 percent a. For both Manager Y and Manager Z. calculate the expected roturn using the CAPM. Round your answers to two decimal places. Manager : Manager 2 b. Calculate each tund manager's average alpha" (1.0., actual return minus expected return) over the five your holding period. Round your answers to two decimal places Manager Y % Manager Z: Choose the correct SML graph The correct graph is Select The correct graph is Select- A Security market Line E(RI) 0.12 0.1 SML All 0.00 - Rm - 0.06 04 0:02 -1 -0.8 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Beta B. Security market Line E(RI) 0.12 SML 0.1 Rm 0.00 .06 0.04 Alpha Alpha2 0.02 1 -0.8 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Beta C. Security market Line E(RI) | 0.121 0.1 Alphay 0:08 SML 0.06 Einhaz Rm 0.04 2:02 -0.8 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 1.6 Beta ULU D Security market Line E(RI) 0.12 0.1+ SML Rm 0.08 0.06 0.04 Alphy Alphaz 0.02 -1 -0.8 -0.6 -0.4 0.2 0.2 0.4 0.6 0.8 1.2 1.4 1.6 Beta -Select- c. Explain whether you can conclude from the Information in Part b it: 1. either manager outperformed the other on a risk-adjusted basis. outperformed the Select on a risk-adjusted basis. 2. either manager outrerformed market expectations in general. Manager Y Select markpot expectations in general, Manager Z-Select market expectations in general