Explanation

To calculate beta using the Capital Asset Pricing Model (CAPM), we use the formula:

$\beta = \frac{E(R_i) - R_f}{E(R_m) - R_f}$

Where:

• $E(R_i)$ = Expected return of the Atlantis Fund = 8.3%
• $R_f$ = Risk-free rate = 2.0%
• $E(R_m)$ = Expected return of the market (S&P 500) = 7.6%

Plugging in the values:

$\beta = \frac{8.3\% - 2.0\%}{7.6\% - 2.0\%} = \frac{6.3\%}{5.6\%} = 1.125$

However, this gives us 1.125, which is not exactly matching any of the options. Let me verify the calculation:

• Atlantis Fund excess return = 8.3% - 2.0% = 6.3%
• Market excess return = 7.6% - 2.0% = 5.6%
• Beta = 6.3% / 5.6% = 1.125

Looking at the options, 1.13 is the closest to our calculated value of 1.125. The volatility information (10.8% for S&P 500 and 8.8% for Atlantis Fund) is not needed for CAPM beta calculation, as CAPM beta is calculated using returns, not volatilities.

Therefore, the correct answer is C. 1.13.