You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% a) For both Manager Y and Manager Z, calculate the expected return using the CAPM, Express your answers to the nearest basis point (i.e. xx.xx%) Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8

You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% a) For both Manager Y and Manager Z, calculate the expected return using the CAPM, Express your answers to the nearest basis point (i.e. xx.xx%) Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8

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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You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 34%. The T-bill rate is 8%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio's standard deviation will not exceed 19%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) Investment proportion y b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return % %
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. b. Compute the Treynor measure for each portfolio and the market portfolio. c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long term bond, and the third is a money fund that provides a safe return of 7%. The stock fund has an expected return of 19% and a standard deviation of 31%. The bond fund has an expected return of 14% and a standard deviation of 23%. The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. What is the proportion invested in the money market fund and each of the two risky funds (rounded to 2 decimal places)? Proportion Invested: Money Market Fund = ?% Stocks = ?% Bonds = ?%
Please help answer this question.
Two investments generated the following annual returns: % -Select- a. What is the average annual return on each investment? Round your answers to one decimal place. The average annual rate of return on X: The average annual rate of return on Y: b. What is the standard deviation of the return on investments X and Y? Round your answers to two decimal places. Standard deviation of X: % Standard deviation of Y: c. Based on the standard deviation, which investment was riskier? was riskier. 20X0 20X1 20X2 20X3 20X4 Investment X 11% 22 30 16 9 Investment Y 22% 24 10 13 12
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?
You want to evaluate two mutual funds using the information ratio measure for performance evaluation. The risk-free return during the sample period is 5.00%, and the average return on the market portfolio is 18.00%. The average returns, residual standard deviations, and betas for the three funds are given below. Average Return Fund A 18% Fund B 21% Residual Standard Deviation 4.00% 27% 1.25% 27% Standard Deviation What is Fund A's Sharpe Ratio? [Select] Beta 0.75 1.00 What is Fund A's Information Ratio? [Select]
I. Consider the following information about K oll and Nell for one-time period: Suppose that the correlation coefficient between the returns for Koll and Nell is -0.40'. If you invest 30% in Koll and 70% in Nell, what are the expected return and standard deviation of the portfolio? Interpret your results. II. The investor achieved the following annual rate of returns over the last four-year period: 25% in Y1, 15% in Y2, 20% in Y3, 10% in Y4. (a) Calculate the geometric average rate of return for the whole 4 year period. (b) Calculate the logarithmic average rate of return for the whole 4 year period. III. Suppose you have a portfolio of IBM and Dell with a beta of 0.4 and 1.1, respectively. If you put 40% of your money in IBM, 55% in Dell and 5% in the risk-free asset, calculate and interpret the beta of your portfolio. IV. Suppose that the beta value for Kei is 1.5, and the risk-free rate of interest is 4%. The investor wishes to (i) have a shareholding in only one company, Kei, and…
What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?
(Expected return and risk) Universal Corporation is planning to invest in a security that has several possible rates of return. Given the probability distribution of returns in the popup window, , what is the expected rate of return on the investment? Also compute the standard deviation of the returns. What do the resulting numbers represent? a. The expected rate of return on the investment is ☐ %. (Round to two decimal places.) b. The standard deviation of the returns is %. (Round to two decimal places.) c. What do the resulting numbers represent? (Select the best choice below.) ○ A. Universal could expect a return of 8.75 percent with a 67 percent possibility that this return would vary up or down by 8.04 percent. B. Universal could expect a return of 8.04 percent with a 67 percent possibility that this return would vary up or down by 8.75 percent. C. Universal could expect a return of 8.75 percent with a 25 percent possibility that this return would vary up or down by 8.04 percent.…
Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible circumstances. To compute an asset’s expected return under a range of possible circumstances (or states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: Aaron owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Aaron’s portfolio value consists of HDS’s shares, and the balance consists of BSB’s shares. Each stock’s expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting Strong 0.50 30% 42% Normal 0.25 18% 24% Weak 0.25 -24% -30%…
The firm wishes to estimate the beta of a portfolio that consists of two assets X and Y. The investment manager of the firm has gathered the following information on the two assets. Securities Rate of Return Standard Deviation Beta X 20% 20% 1.5 Y 10% 30% 1.0 Risk free asset 5% Calculate: The beta of the portfolio if 75% of the funds are invested in Y and 25% in X The portfolio expected return and the portfolio beta if you invest 35 % in X, 45% in Y and 20 % in the risk-free asset Assuming the CAPM applies, if the market’s expected return is 13 percent, the risk free rate is 8% and stock X’s required rate of return is 16%, what is the stock’s beta coefficient?

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