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- Use the following to answer questions a. – f. a. What is the alpha for Fund B? b. Based on alpha, which fund displays superior performance? c. What is the Sharpe ratio for Fund B? d. Based on the Sharpe ratio, which fund displays superior performance? e. Suppose you are an investment counselor with a new client, Jonsey, and that Funds A and B are the only options available in Jonsey's company sponsored retirement account. Jonsey has no other investments. Which fund would you recommend, and why? f. What additional evidence would make you more confident in your recommendation, that is, more confident that the fund you recommend has the ability to perform in the future? (Hint: The answer has nothing to do with the Treynor Index.)Suppose that a mutual fund agent approaches you and promote a fund which allows you to withdraw money from your Employment Provident Fund (EPF) to invest. From the analysis of the agent, the fund expected to pay up to 11% return, and you know that EPF paid an average 6% return and treasury’s return fixed at 2.75%. Based on the discussion in this chapter and in your opinion, are you going to take the investment? Justify your answerAn investor is evaluating the historical performance of an investment fund. The following annual returns are provided to the investor: Fund Value Year 0 $260 Year 1 286 Year 2 328 Year 3 315 Year 4 310 Year 5 305 Required: a. Calculate the investment returns for each year. b. Compute the arithmetic mean return. c. Calculate the geometric mean return.
- You became a fund manager in UAlbany Bank. After research, you pulled up two potential assets to invest. The assets' anticipated gains per share next year are: Asset 1, 324 Asset 2,324 Asset 1, 14 Probability Which asset is riskier and what is its variance per share? Asset 2, 14 0.40 0.40 0.20 Asset 1 -$10 $20 $35 Asset 2 $10 $15 $5You wish to compare the performance of two different mutual funds. Return ßp M_Fund A 0.072 0.9 M_Fund B 0.078 1.1 During the same period, returns for the following were: S&P500 rf 0.075 0.045 Which mutual fund performed better on a risk-adjusted basis, i.e. RE: alpha? Pick the best answer, e.g. less negative alpha closer to 0 -- is better. Both funds delivered the same alpha or risk-adjusted returns One fund beat the S&P benchmark Both funds underperformed relative to their risk M_Fund B delivered positive alpha M_Fund B had higher alpha than M_Fund ASuppose 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…
- 4. Suppose you are a money manager of a $10 million investment fund. The fund is invested in three assets with the following investments and betas: Investment Beta 1.80 0.75 1.20 The remainder is invested in T-bills (risk free asset) with 3% return. a. If the market expected rate of return is 9% what is the fund's expected rate of return? b. Using Funds A and B, create a portfolio (report the portfolio weights and $ investment out of $10 million) with a 0.92 beta. Stock A B C $3,000,000 2,000,000 4,000,000Investor has had the following returns in the Magic Fund for the past 4 years: 15%, 25%, -30%, 18%. c) State whether the annual geometric return (assume positive) should be higher, lower, or the same as the annual arithmetic return. Neither calculation nor explanation is necessary. d) State which measure, annual arithmetic return or annual geometric return, better represents how an investment performed over time. Neither calculation nor explanation is necessary.An individual with only $10,000 to invest is most likely better off investing in Select one: A. ETFs to increase the diversification. B. individual equities to increase portfolio efficiency. C C. individual bonds and individual equities to increase efficiency. D. mutual funds to increase the expected return. What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12 per cent and asset 2 has a standard deviation of 9 per cent? Select one: C A. 0.3456 C B. 1.5980 C. 0.8721 D. 0.2963
- Help me pleaseInvestments are made to earn a return, but making investments requires the individual to bear risk. A higher return by itself does not necessarily indicate superior performance. It may simply be the result of taking more risk. Given this context, answer the following two-part questions. A mutual fund generates a 10.8 percent return. During the same period, the market rose by 8.8 percent. If the risk-free rate was 2 percent and the fund had a beta of 1.2 : Did the fund outperform the market? Explain your response.If you desire to forecast performance of a mutual fund for next year, the best forecast will be given by the a. geometric average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. both geometric average return and arithmetic average return You buy and hold a S&P 500 index fund. You always reinvest your dividends earned on the fund. Which method provides the best measure of the actual average historical performance of the investments you have chosen? a. both geometric average return and arithmetic average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. geometric average return
