Question 3 Tom, Dick and Harry are three fund managers. The performance of their funds,...
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Question 3 Tom, Dick and Harry are three fund managers. The performance of their funds, together with some other data pertaining to those funds are shown in the table below: Characteristic Tom Dick Harry Fund performance Fund beta Fund composition No. of stocks 15% 1.1 Diverse stocks 150 20% 1.4 Small stocks 50 25% 1.8 Technology stocks 30 Expected return on market = 12% Risk-free rate = 4% (a) Compute the expected return for each of the three funds. (9 marks) (b) If the three fund managers use publicly available information to pick their stocks, analyse and discuss whether the performance of each manager provides evidence of the violation of the semi-strong form market efficiency. (12 marks) (c) Ignore the fund performance of Tom and Dick. Suppose you are told that Harry plays golf regularly with many of the CEOs and senior management of the technology companies he invests in. Analyse and explain what his fund's performance suggests about market efficiency, and in particular, which form. (4 marks)
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