A policy portfolio has 50% allocated to UK equity and 50% to a global developed market. The manager has invested 55% in the UK equity, 35% in global developed markets and 10% in emerging markets. The returns of the markets were as follows: UK equity 15% Global developed market 7% Emerging market 5% Calculate and explain the contribution to the portfolios return from the asset managers allocation decision
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A policy portfolio has 50% allocated to UK equity and 50% to a global developed market.
The manager has invested 55% in the UK equity, 35% in global developed markets and 10% in emerging markets.
The returns of the markets were as follows:
UK equity 15%
Global developed market 7%
Emerging market 5%
Calculate and explain the contribution to the portfolios return from the asset managers allocation decision
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- Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have the following characteristics: • Stock A has and expected return of 22% and a beta of 2. • Stock B has an expected return of 15% and a beta of 0.8. The standard deviation of the market portfolio’s return is 18%. (a) Assuming that stocks A and B are correctly priced according to the CAPM, compute the risk-free rate and the market risk premium.Questions: Compute the expected intrinsic price of each stock in year 5. Assume that All stocks are fairly priced such that the intrinsic and market values are equal. Dividends are paid at the beginning of the year How many units of each stock will Stephanie buy? Support your response with relevant computations. What will be the total investment cost for shares? Show appropriate calculations. Which bonds are acceptable for investment? Justify your response with suitable computations. What will be the total cost of investment in bonds? Do the stock and bond investments fall within Stephanie’s investment guidelines? Show appropriate computations in support of your response. Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be the surplus / shortfall, if any? Given that Stephanie’s bank offers an interest rate of 6% per year, what additional amount should she have deposited as a fixed…Many Exchange Traded Funds (ETFs) use indexes as their underlying benchmarks, so it is equally important to understand the different types of indexes. Your ETF investing strategy depends on them. The three main types of indexes are price-weighted, value-weighted, and pure unweight. Also the capital market contains different instruction the investors can use while executing their investment. Discuss the weighting methods used in index construction with their scheme?
- b) You need to analyse the type of investment skills the fund managers have employed and suggest how improve the funds's performances in the future. Below is the historical performance for two (2) different funds, the Kuala Lumpur composite Index (KLCI) and the 30-days Malaysia Treasury bill. Employ the data and analyse according to the questions below: Investment fund Average rate of return Standard deviation Beta CIMB Small cap fund 25.5% 18% 1.45 Public Bank fund 20% 13% 0.8 KLCI 18% 15% 30 days-T-Bill 2.4% 0% i) Calculate the fama overall performance measure for both funds Compute the expected return to risk for both fund ii) ii) Compute the measure of selectivity, diversification, and net selectivityAssume Gillette Corporation will pay an annual dividend of $0.64 one year from now. Analysts expect this dividend to grow at 12.7% per year thereafter until the 4th year. Thereafter, growth will level off at 1.6% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 7.2%? The value of Gillette's stock is (Round to the nearest cent.)The table below shows information for 3 stocks. Security Beta Risk-free rate Expected market return Stock 1 1.9 0.02 0.09 Stock 2 1.2 0.035 0.09 Stock 3 0.2 0.015 0.09 The risk-free rates are different because they were measured in different years. Calculate the expected (or required) return for each stock, using the Capital Asset Pricing Model (CAPM). What is the required return for stock 1? What is the required return for stock 2? What is the required return for stock 3?
- In a time series regression of the excess return of a mutual fund on a constant and the excess return on a market index, which of the following statements should be true for the fund manager to be considered to have “beaten the market” in a statistical sense? Select one: a. The estimate for Beta (parameter) should be positive and statistically significant b. The estimate for Beta (parameter) should be positive and statistically significant c. The estimate for Beta (parameter) should be positive and statistically significantly greater than the risk-free rate of return d. The estimate for Beta (parameter) should be negative and statistically significant.Question 2. Consider the financing decision of a new investment opportunity for the four firms. The new investment opportunity yields a return of Rs. 1.2 at the end of the period with an initial investment of Rs. 1 in the beginning of the period. Assume the rate of interest is zero and the investors are competitive. The types of the firms are T1, T2, T3 and T4. Each firm has an existing asset to generate a fixed returns plus a random part Z. The random variable Z follows a Bernoulli distribution as Z= 1.5 or -1.5 with equal probability. The prior belief about the firms type and their fixed returns are given by T1: 0.3 P(TI) = 0.01 T2: 1.5 P(T2)= 0.45 T3: 20 P(T3) = 0.09 T4: 1.6 P(T4) = 0.45 (Note that given the fixed returns any firm say T1 has the total cash flow at the end of the period is 0.30+Z+1.2 if it undertakes the investment; or 0.30+Z if it does not undertake the new investment) 2 Each firm decides whether to finance the new investment with either debt or equity or to pass…Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your answers to 2 decimal places. Input all amounts as positive values.) Return on Manager's Weight 0.45 Manager's Return EAEE Meight Equity Index Europe Australasia 0.1 14 14 1.2 0.6 0.3 0,95 1.4 0.56 -0.01 161 21 21 Far East 19 Profit/Lose Currency Selection Country Selection relative to EAFE relative to EAFE relative to EAFE Stock Selection
- As of June the US risk-free rate is approximately 0.159%. Assume for the moment that market risk is 7% due to the pandemic. Answer the following questions: A. What is the required return for the company you used for the financial analysis project? Show your calculations. B. The risk-free rate and market risk above define a Security Market Line (SML). If the risk-free rate were to rise to 0.9% next month, how would that change the SML? Explain your answer. C. Assume instead of the change in B that the market risk declined to a more normal 5% by December. How would that change the SML defined by the original conditions? Explain your answer.Suppose stock returns can be explained by the following three-factor model: R=RF+ B1F+B2F2-B3F3 Assume there is no firm-specific risk. The information for each stock is presented here: ẞ1 B2 ẞ3 Stock A 1.75 Stock B .82 Stock C .83 .75 $.50 1.35 -.70 -.33 1.44 The risk premiums for the factors are 7.1 percent, 6.3 percent, and 6.7 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent invested in Stock B, and the remainder in Stock C. The risk-free rate is 4.2 percent. What is the beta for each factor for the return on your portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Factor F1 Factor F2 Factor F3 What is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places. Input all amounts as positive values.) EAFE Weight Return on Equity Index E1/E0 Manager's Weight Manager's Return Europe 0.60 20% 1.10 0.48 18% Australasia 0.10 18 0.50 0.20 16 Far East 0.30 25 1.30 0.32 16