EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 7, Problem 11CP
Summary Introduction
To recommend: The best fund.
Concept introduction: The portfolio is a proportion of each security held of its total market value. A good portfolio should have a beta of +1 to -1.
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You are an analyst for a large public pension fund and you have been assigned the
task of evaluating two different external portfolio managers (Yellen and Zagami)
who (actively) manage two funds which are considering. Your associates have
assembled the following historical average return, standard deviation, and CAPM
beta estimates for these two fund managers over the past five years. In addition,
you have estimated that the risk premium for the market portfolio is 5.12% and the
risk-free rate is currently 4.14%.
What is Ms. Yellen's average "alpha" for the period.
Report your answer in percentage format rounded to three decimal places.
(For example.1234 should be entered as "12.3").
Fund Manager Actual Avg. Return Standard Deviation
Ms. Yellen
11%
Mr. Zagami
8.24%
Answer:
11.07
8.75%
Beta
1.18
0.9
(Computing the standard deviation for an individual investment) James Fromholtz is considering whether to invest in a newly formed investment fund. The fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes:
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.
a. Based on these potential outcomes, what is your estimate of the expected rate of return from this investment opportunity?
b. Calculate the standard deviation in the anticipated returns found in part
a.
c. Would you be interested in making such an investment? Note that you lose all your money in one year if the economy collapses into the worst state or you double your money if the economy enters into a rapid expansion.
State of Economy
Probability
Fund Returns
Rapid expansion and recovery…
An 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.
Chapter 7 Solutions
EBK INVESTMENTS
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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