Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 4, Problem 28PS
You expect a tax-free municipal bond portfolio to provide a
a. What fraction of portfolio income is given up to fees?
b. If the management fees for an equity fund also are 0.6%, but, you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees?
c. Why might management fees be a bigger factor in your investment decision for bond fluids than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts lend to focus on the fixed-income market?
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Students have asked these similar questions
3) Suppose the value function v(.) of an investment fund manager is defined by:
v(x) = x for gains and v(x) = -2|x| for losses.
Yesterday, the fund manager had a good day: their investments earned $15m.
Today, the fund manager had a bad day: their investments lost $10m.
a) What is the fund manager's value if they integrate the investment returns for the two days?
b) What is the fund manager's value if they evaluate the investment returns for the two days
separately?
c) Discuss how an investor's information evaluation horizon (i.e., frequent vs infrequent) might
affect their investment strategy.
3. Consider an individual who has the possibility of investing an amount t in period 1 in a
fund that gives an amount s in period 2.
(a) If the interest rate r is positive, what would be the smallest s so that it is optimal for
the consumer to accept that investment?
(b) If t = 100 and s =
115, what is the highest interest rate at which the individual is
willing to invest in that fund?
You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Management fees of the fund are .6%. What fraction of portfolio income is given up to fees? If the management fees for an equity fund also are .6%, but you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees? Why might management fees be a bigger factor in your investment decision for bond funds than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts tend to focus on the fixed-income market?
Chapter 4 Solutions
Essentials Of Investments
Ch. 4 - Prob. 1PSCh. 4 - Prob. 2PSCh. 4 - Prob. 3PSCh. 4 - Prob. 4PSCh. 4 - Prob. 5PSCh. 4 - Prob. 6PSCh. 4 - Prob. 7PSCh. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Prob. 10PS
Ch. 4 - An open-end fund has a net asset value of $10.70...Ch. 4 - Prob. 12PSCh. 4 - The composition of the Fingroup Fund portfolio is...Ch. 4 - Reconsider the Fingroup Fund in the previous...Ch. 4 - Prob. 15PSCh. 4 - Prob. 16PSCh. 4 - Prob. 17PSCh. 4 - Loaded-Up Fund charges a 12b-1 fee of 1% and...Ch. 4 - City Street Fund has a portfolio of $450 million...Ch. 4 - Prob. 20PSCh. 4 - Prob. 21PSCh. 4 - Prob. 22PSCh. 4 - Prob. 23PSCh. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Prob. 27PSCh. 4 - You expect a tax-free municipal bond portfolio to...Ch. 4 - Prob. 29PSCh. 4 - Prob. 30CCh. 4 - Prob. 1WMCh. 4 - Prob. 2WMCh. 4 - Prob. 3WM
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