Suppose you are the manager of an investment fund in a two-parameter economy. Given the following forecast:

Question:

Suppose you are the manager of an investment fund in a two-parameter economy. Given the following forecast:
E(Rm) = .16, σ(Rm) = .20, Rf = .08
(a) Would you recommend investment in a security with E(Rj) = ,12and COV (Rj, Rm) = .01?
(b) Suppose that in the next period security R1 has earned only 5% over the preceding period. How would you explain this ex post return?