(please don't use Ai solution) If your maximum Sharpe ratio increased from 0.333 to 0.444 when adding a positive-alpha (open-ended) mutual fund to your portfolio, and the fund's idiosyncratic volatility was 15%, what was thefund's alpha? (report your answer rounded to the nearest 3 decimals -- eg., 0.8765 % --> 0.877, 0.8763 --> 0.876)

Step by step solution using the information provided about Sharpe ratios and mutual fund…

Answered: If your maximum Sharpe ratio increased…

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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As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U}: Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 a. If the risk-free rate is 3.9 percent and the expected market risk premium (£(RM) -RFR} is 6.1 percent, calculate the expected return for each mutual fund according to the CAPM. b. Using the estimated expected returns from part (a) along with your own return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?
CAPM As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Fund T Fund U Forecasted Return CAPM Beta 1.20 0.80 9.0% 10.0 a. If the risk-free rate is 3.9 percent and the expected market risk premium (E(RM)-RFR) is 6.1 percent, calculate the required return for each mutual fund according to the CAPM. b. Using the estimated required of returns from part (a) along with your return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?
As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 f the risk-free rate (RFR) is 3.9% and the expected market risk premium (i.e., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ.
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Consider the following information for 3 mutual fund P, Q, R and the market.Mutual fund Mean Return Risk BetaP 25% 1.785 1.10Q 16% 0.962 1.29R 19% 1.322 1.55Market 16% 1.00The risk free rate was 12%. Calculate the Treynor, Sharpe & Jenson Measure andrank the same.
Nikul
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