You are choosing among three retirement funds. Alpha Fund has an expected return of 24% and a standard deviation of 10%. Beta Fund has an expected return of 41% and a standard deviation of 35%. Gamma Fund has an expected return of 22%. If according to the mean-standard deviation rule the Gamma Fund would never be chosen, then the Gamma Fund's standard deviation must be greater than what? Gamma Fund's standard deviation must be greater than 10.0 %. (Round to one decimal place.)

You are choosing among three retirement funds. Alpha Fund has an expected return of 24% and a standard deviation of 10%. Beta Fund has an expected return of 41% and a standard deviation of 35%. Gamma Fund has an expected return of 22%. If according to the mean-standard deviation rule the Gamma Fund would never be chosen, then the Gamma Fund's standard deviation must be greater than what? Gamma Fund's standard deviation must be greater than 10.0 %. (Round to one decimal place.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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This question assumes the standard mean-variance utility function. A pension scheme offers investors two possible funds to invest in: a cash fund and a balanced fund. The cash fund offers a guaranteed return of 1.90%. The balanced fund offers an expected return of 5.50% with volatility 17.80%. What is the lowest level of risk-aversion that would cause an investor to choose the cash fund? 2.27 0.40 3.47 0.02
a. What is the market risk premium (M-FRF)? Round your answer to two decimal places. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%? I. less than 14% II. greater than 14% III. equal to 14%
The average return, standard deviation, and beta for Fund A is given below along with data for the S&P 500 Index. Fund Average Return Standard Deviation Beta A 22.9% 24% 1.4 S&P 500 15.7% 19% 1 Risk-free 3.5% Calculate the Jensen's alpha measure of performance for Fund A only. ENTER your answer using THREE DECIMAL places.Use the correct sign if the answer is negative! Example: -1.234
If a fund has a return of 12% and a standard deviation of 15%, and if the risk-free rate is 2%, then what is its Sharpe ratio O a. 0.667 O b. 0.235 O c. 0.435 O d. 0.0.237
Suppose you have recently accepted a new job and are setting up your retirement allocations within the firm's 401k plan. The plan options contain two risky mutual funds, A and B. You may assume that all fees are the same across the two funds. Fund A has an expected return of 6% and the standard deviation of returns is 12%. Fund B has an expected return of 7% and the standard deviation of returns is 15%. The correlation between returns on the two funds is 0. The plan also contains a Treasury fund which provides a risk-free return of 3%. A Suppose you can only invest in one of the two risky mutual funds (A or B), but can combine it with the Treasury fund in any proportions you wish. Which of the two mutual funds would you choose and why B Maintaining the restrictions on your investment choices from the last question, what is the best expected return you could achieve if you set up a portfolio with a standard deviation of returns equal to 10%? (Please express your answer in percentage…
Consider two possible investments whose payoffs are completely independent of one another. Both investments have the same expected value and standard deviation. If you have $1,000 to invest, could you benefit from dividing your funds between these investments? Explain your answer. a) Yes. By dividing your funds, you are adding combinations of possible payoffs that lie between the worst- and best-case scenarios and so the probability-weighted spread of the possible payoffs is smaller. The variance of the payoffs is halved. b) Yes. Because one investment will always pay off when the other doesn't, your risk is reduced. c) No. Because the payoffs from these investments are independent and not negatively correlated, there is no benefit. d) No. Usually diversification helps to spread risk, but in this case, because the investments have the same expected value and standard deviation there is no benefit.
An investor considers two mutual funds. Based on past experience, the first fund has an expected return of 0.08 and a standard deviation of 0.05. The second fund has an expected return of 0.07 and a standard deviation of 0.06. There is no reason to assume that future performance of these funds will differ from past performance. However, the second fund has a guarantee attached that the return in any year will not be negative.RequiredA. Which fund would a rational investor be likely to buy according to single-person decision theory?B. The investor buys the second fund. Use prospect theory to explain why.
The average return, standard deviation, and beta for Fund A is given below along with data for the S&P 500 Index. Fund Average Return Standard Deviation Beta A 14% 28.5% 1.7 S&P 500 17.6% 19.4% 1 Risk-free 4.8% Calculate the Treynor measure of performance for Fund A. Convert percentages to decimal places before calculating your answer. ENTER your answer using FOUR DECIMAL places. Example: 0.1234
If $x is invested in mutual fund A, the annual return has an expectation of $0.1x and a standard deviation of $0.02x. If $x is invested in mutual fund B, the annual return has an expectation of $0.1x and a standard deviation of $0.03x. Suppose that the returns on the two funds are independent of each other and that I have $1000 to invest. (a) What are the expectation and variance of my annual return if I invest all my money in fund A? (b) What are the expectation and variance of my annual return if I invest all my money in fund B? (c) What are the expectation and variance of my total annual return if I invest half.
You have estimated the single index model (SIM) fund B and found that its alpha and beta are 0.035 and 1.1 respectively. The standard deviation of Fund B's excess returns is 30% and the market portfolio excess returns have a standard deviation of 20%. What's the information ratio of Fund B?
The average return, standard deviation, and beta for Fund A is given below along with data for the S&P 500 Index. Fund Average Return Standard Deviation Beta A 25.7% 29% 1.3 S&P 500 17.9% 20% 1 Risk-free 3.8% Calculate the M2 measure of performance for Fund A. Use the correct sign if the answer is negative! Example: -1.23
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?

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