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.