In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad-based fund of stocks and other securities with an expected return of 9.65% and a volatility of 29.88%. Currently, the risk-free rate of interest is 2.88%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 27.64%, a volatility of 73.89%, and a correlation of 0.19 with the Tanglewood Fund. Calculate the required return and use it to decide whether you should add the venture capital fund to your portfolio. Answer: The required return is...% (Round to two decimal places)

In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad-based fund of stocks and other securities with an expected return of 9.65% and a volatility of 29.88%. Currently, the risk-free rate of interest is 2.88%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 27.64%, a volatility of 73.89%, and a correlation of 0.19 with the Tanglewood Fund. Calculate the required return and use it to decide whether you should add the venture capital fund to your portfolio. Answer: The required return is...% (Round to two decimal places)

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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Consider the following information and then calculate the required rate of return for the Global Equity Fund, which includes 4 stocks in the portfolio. The market's required rate of return is 16.00%, the risk-free rate is 5.25%, and the Fund's assets are as follows:Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Stock Investment Beta A $205,000 1.45 B $375,000 0.85 C $555,000 –0.45 D $1,130,000 2.08
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 have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. 1ITT Market Risk-Free Year Fund 2011 -21.8% -41.5% 3% 2012 25.1 21.2 4 14.1 2013 14.5 8.8 2014 6.4 4 -2.22 2015 -5.2 What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Sharpe ratio Treynor ratio
Badhiben
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock's Beta Coefficient 0.3 1.4 2.3 1.0 E 1.3 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Stock A B III. 4.1% + (11,6%) b TV. 4.1% + (11.5%) b V. n-3.0 % + (11.6%) b) C Investment $160 million 120 million D 80 million 80 million 60 million Market Return -25% 0 13 0.2 32 0.1 55 a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) 1.5.2% + (10.5%) b II. n-3.0%+ (11.5%) b Probability 0.1 0.2 0.4 -Select B b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the…
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A company's fund manager has a P20,000,000 portfolio with a beta of 0.75. The risk-free rate is 4.50% and the market risk premium is 5.00%.The manager expects to receive an additional P30,000,000, which she plans to invest in several stocks. After investing the additional funds, she wants the fund's required return to be 9.50%. 1. What is the required rate of return on the initial P20M investment? 2. What is the rate of return of all risky and risk-free securities? 3. To achieve the fund manager’s required return target, the funds should be invested in an investment with a beta of 4. Judge the overall riskiness of the P50M portfolio A. Aggressive B. Neutral C. Conservative
Suppose you are the money manager of a $3.92 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 360,000 1.50 B 700,000 (0.50 ) C 960,000 1.25 D 1,900,000 0.75 If the market's required rate of return is 10% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 2.00%. What rate of return should investors expect (and require) on this fund? Do not round your intermediate calculations. Stock A B C D 11.16% 10.82% 9.93% 9.37% 9.71% Amount $1,075,000 $675,000 $750,000 $500,000 $3,000,000 Beta 1.20 0.50 1.40 0.75
Suppose that a mutual fund manager has a $20 million portfolio with a beta of 1.7. Also suppose that the risk free rate is 4.5% and the market risk premium is 5%. The manager expects to receive an additional $5 million, which is to be invested in a number of new stocks to add to the portfolio. After these stocks are added, the manager would like the fund's required rate of return to be 12%. For notation, let represent the required return, let RF represent the risk free rate, let b represent the beta of a group of stocks, and m represent the market return. According to the video, which equation most closely describes the security market line (SML)? OT=TRE+bx (M + TRF) O TRE-6x (rM - TRF) Or=TRF + TM-TRF ORF + bx (rM - TRF) Hint: Recall that the manager wants the new required rate of return for the portfolio to remain at 12%. Using the equation you just identified, and plugging in the relevant information, yields a beta of the portfolio, after the new stocks have been added, of…
Suppose that today is December 31, 2021. Consider a hedge fund with the following investment strategy: buy high quality stocks and short-sell low quality ("junk") stocks. The hedge fund follows a beta- neutral strategy. The estimated betas of high and low quality stocks over the 01/2019 to 12/2021 time period are 1.01 and 1.32 respectively. If the hedge fund's gross leverage is capped at 2, then how much should the fund invest in high quality stocks? To answer this question, compute the weighted invested in high-quality stocks at the end of 12/2021. (Hint: the sign matters) The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.
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