USE THESE QUESTIONS TO ANSWER ONE BELOW ONLY

3.1 In the CAPM the market portfolio (i) always lies on the efficient frontier; (ii) is always the minimum variance portfolio on the efficient frontier." Do you agree with this statement? Carefully explain your answer. (10 marks) 3.2 Discuss how you would use CAPM to evaluate performance of an equity fund given information on its alpha" and "beta". Draw a graph to illustrate your answer. (15 marks) = = 3.3 Suppose that CAPM assumptions hold. Investment funds A, B and C have the following portfolio betas: BA = 0.1, BB = 0.4 and Bc = 1. From the historical data we know that the expected returns on their portfolios are ra = 3.3%, rg = 4.2% and rc = 6%. Use this information to find the risk-free rate of return and the market risk premium. (5 marks) = = 3.1 In the CAPM the market portfolio (i) always lies on the efficient frontier; (ii) is always the minimum variance portfolio on the efficient frontier." Do you agree with this statement? Carefully explain your answer. (10 marks) 3.2 Discuss how you would use CAPM to evaluate performance of an equity fund given information on its alpha" and "beta". Draw a graph to illustrate your answer. (15 marks) = = 3.3 Suppose that CAPM assumptions hold. Investment funds A, B and C have the following portfolio betas: BA = 0.1, BB = 0.4 and Bc = 1. From the historical data we know that the expected returns on their portfolios are ra = 3.3%, rg = 4.2% and rc = 6%. Use this information to find the risk-free rate of return and the market risk premium. (5 marks) = =