Two fund managers are comparing performance. One averaged a 19% rate of return and the other a 15% rate of return. However, the beta of the first fund manager was 1.5, whereas that of the second fund manager was 0.8.

1)Can you tell which fund manager had higher ability in selecting securities? (2 marks)

2)If the T-bill rate was 6% and the market return during the period was 14%, whichfund manager would be considered the superior stock selector? (3 marks)

3)How will you form a passive portfolio that would have the same beta as the secondinvestor? (2 marks)

4)The two fund managers select the individual stocks by working on fundamental analysis of the firms. According to your calculations in 2), is it likely that the marketis in the semi-strong form of efficiency? (1 mark)

5) If the market is highly efficient and no securities are mispriced, what are the roles of a fund manager? (2 marks)