Suppose a mutual fund maintains a portfolio with 2/3 of the investment weight in  in the S&P 500 and 1/3 of the investment weight in a riskless investment with  constant daily return of 1%. Letting Rt denote day-t fund return, and RtS&P the day-t  S&P 500 return, the fund return each day t therefore satisfies Rt = 1/3×1% + 2/3× RtS&P Suppose you regress the daily fund returns (the Y-variable) on daily S&P 500 returns.
Hint: You should be able to answer the following questions without doing any  calculations. 

a) What should the R-squared of the regression be? Why? 

b) What should the slope of the regression line (i.e., the beta) be?

Answer rating: 100% (QA)

a The Rsquared of the regression should be 23 The Rsquared value represents the proportion of the va... View the full answer