Answer: 0.92

The beta of the Andromeda Fund is calculated using the Capital Asset Pricing Model (CAPM) formula: \[ E(R_i) = R_f + \beta_i * [E(R_m) - R_f] \] Where: - \( E(R_i) \) is the expected annual return of the fund (Andromeda Fund in this case). - \( R_f \) is the risk-free rate per year. - \( \beta_i \) is the beta of the fund with the market index (S&P 500 Index). - \( E(R_m) \) is the expected annual return of the market. Given values: - \( E(R_i) = 6.8\% \) (Andromeda Fund's expected annual return) - \( R_f = 2.2\% \) (risk-free rate) - \( E(R_m) = 7.2\% \) (S&P 500 Index's expected annual return) Plugging these values into the CAPM formula gives us: \[ 6.8\% = 2.2\% + \beta_i * (7.2\% - 2.2\%) \] Solving for \( \beta_i \): \[ 6.8\% = 2.2\% + \beta_i * 5\% \] \[ 6.8\% - 2.2\% = \beta_i * 5\% \] \[ 4.6\% = \beta_i * 5\% \] \[ \beta_i = \frac{4.6\%}{5\%} \] \[ \beta_i = 0.92 \] Thus, the beta of the Andromeda Fund is 0.92, which corresponds to option A. This indicates that the Andromeda Fund is slightly less volatile than the S&P 500 Index, as its beta is less than 1.

Author: LeetQuiz Editorial Team