An investor considers adding the Cobalt High Income Fund to her portfolio. Cobalt has returned 18% over the previous year while the risk-free rate is 3%. Measures of risk for Cobalt include a beta of 1.5 and a standard deviation of 25%. The return on the relevant benchmark over the previous year is 13% with a standard deviation of 17%. The investor's estimate of the Jensen's alpha for the Cobalt Fund is closest to: Select one OA. -0.01. OB. 0.00. OC. 0.01. OD. 0.05.
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- Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 46%. The T-bill rate is 4%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund. Required: a. What are the expected return and standard deviation of your client's portfolio? (Round your answers to 1 decimal place.) Expected return Standard deviation % per year % per year b. Suppose your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 30% 30 40 What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) Security Investment Proportions T-Bills % Stock A % Stock B % Stock C %A mutual fund manager expects her portfolio to earn a rate of return of 11% this year. The beta of her portfolio is 0.9. The rate of return available on risk-free assets is 4% and you expect the rate of return on the market portfolio to be 14%. a. What expected rate of return would you demand before you would be willing to invest in this mutual fund? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Is this fund attractive to you? a. "Expected rate of return b. Is this fund attractive to you? %You plan to invest in either a mutual fund X or mutual fund Y. The following information about the annual return (%) of each of these investments under different demand levels is available, along with the probability that each of these states of nature will OCcur: Demand Probability Fund X Fund Y High 0.4 30% 25% Medium 0.4 22% 34% low 0.2 17% 25% a) Compute expected return, standard deviation for each investment and covariance of the mutual fund X and mutual fund Y. b) Would you invest in the mutual fund X or Y? Explain. c) If you chose to invest in mutual fund X and the state of nature turns up to be the low demand, what do you think about the possibility of the opportunity loss of 8% in comparison to investing in mutual fund Y?
- Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) 13%, op = 17%, rf = 5%. %3D a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk- free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risky portfolio % Risk-free asset % b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation %You have just been appointed as a fund manager for Gate Way Fund, of which you will be responsible of a portfolio that consists of two assets. The analysts have provided you with the expected returns and standard deviations of returns of which are listed in the table below: Asset A Asset B Expected Return 7% 11% Standard Deviation 15% 21% Calculate the expected return of the portfolio if half is invested in asset A. If the covariance of the two assets is 28, calculate the correlation coefficient of the portfolio. Calculate the variance of the portfolio if the investments in the two assets classes is equal. Calculate the standard deviation of the portfolio if the assets are equally weighted. The two asset portfolio model can be extended to a portfolio with more assets. Explain the implications of this approach for the understanding of portfolio risk and discuss the practical problems of applying the model in this fashion.Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 8%, op = 15%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse? Complete this question by entering your answers in the tabs below. Required A Required B Required C Risky portfolio Risk-free asset Answer is complete but not entirely correct. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall…
- Suppose your client asks for your advice about which portfolio she should invest in. After some research, you find the following risky portfolios that are suitable for your client. Based on her previous financial contracts, you estimate that her risk aversion coefficient is 8.5. The return on a 9-month T-bill is 6%. Which asset would you recommend for your client? Low Risk Expected Return 0.07 Std Deviation 0.05 The 9-month T-bill. The low-risk portfolio. The high-risk portfolio. O The medium-risk portfolio. Medium Risk 0.09 0.1 High Risk 0.13 0.2Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 6%. Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 13% a. What is the proportion y? (Enter your answer as a decimal number rounded to 2 decimal places.) Proportion y b. What is the standard deviation of the rate of return on your client's portfolio? (Enter your answer as a percentage rounded to two decimal places.) Standard % per year deviationAssume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 42%. The T-bill rate is 6%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund. Required: a. What are the expected return and standard deviation of your client's portfolio (Round your answers to 1 decimal place.) Expected return Standard deviation b. Suppose your risky portfolio includes the following investments in the given proportions: 26% 35 39 Stock A Stock B Stock C What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) Security T-Bills Stock A Stock B Stock C % per year % per year Investment Proportions % % % %
- You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% b) Calculate each fund mgr's average "alpha" (i.e. actual return minus expected return) over the 5 year holding period. Show graphically where these alpha statics would plot on the security market line (SML) Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 46%. The T-bill rate is 4%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund. Required: a. What are the expected return and standard deviation of your client's portfolio? (Round your answers to 1 decimal place.) Expected retum Standard deviation b. Suppose your risky portfolio includes the following investments in the given proportions: 30% 30 40 Stock A Stock B Stock C What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) Security T-Bills Stock A Stock B Stock C Investment Proportions % per year % per year % % % % Risky portfolio Client's overall portfolio c. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.) Reward-to-Volatility RatioConsider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 9%, Op = 24%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?
