Check questions ch 18

An investor who uses only the Treynor ratio to evaluate the performance of a mutual fund is most likely to conclude:   a. Total risk is more important than systematic risk b. The fund is not well-diversified. c. A measure of market portfolio performance is essential to evaluate the fund d. The beta of the fund captures the relevant risk of the fund.

Which of the following hedge fund types is most likely to have a return that is closest to risk-free?a. A market-neutral hedge fund.b. An event-driven hedge fund.c. A long/short hedge fund.

a. Using the data in the table below and calculate the following performance measures. i. Sharpe ratio ii. Treynor measure iii. Jensen's alpha iv. M-squared measure v. T-squared measure, and vi. Appraisal ratio (information ratio) Average Standard Beta Unsystematic Fund Return Deviation Coefficient Risk A 0.240 0.800 0.900 0.220 0.017 B 0.200 0.170 0.450 C 0.380 0.290 0.400 0.290 1.200 0.074 0.260 0.180 1.100 0.026 E 0.900 0.121 F 0.460 0.190 0.180 0.153 0.120 0.320 1.100 G 0.250 0.700 Market 0.220 1.000 0.000 Risk-free return 0.050 0.000

Which of the following best describes an index mutual fund? Mutual fund manager based on preset ratio of stocks and bonds. Mutual fund manage based on a person's anticipated year of retirement.  Passively managed fund design to mimic a specific market. Mutual fund that attempts to earn rates of return that exceed the return of the market.

Select the term associated with mutual funds, ETFs and real estate that corresponds to each of the given descriptions. (Note: These are not necessarily complete definitions, but there is only one possible answer for each description.) Description This refers to a risk management technique where investors collect their money in a fund and then invest the fund into a diversified set of securities This plan is offered by most open-ended funds and allows intors to automatically receive a certain amount of money periodically This is an investment company that allocates investor funds into both income generating property and mortgage loans This is a specific type of real estate investment trust that owns and operates income-producing real This fund limits its investments to short-term, tax-exempt municipal securities Term

You are looking for an investment vehicle that has two characteristics. First, you want an incentive structure for asset managers where they earn more money when you (the investor) earns more money. Second, you want a mostly diversified pool of investments. Which vehicle is your best option? O Hedge fund Closed-end mutual fund Open-end mutual fund

The returns on the Bledsoe Small-Cap Fund are the most volatile of all the mutual funds offered in the 401(k) plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Does this affect your decision to invest in this fund? A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation. The standard deviation and return of the funds over the past 10 years are listed below. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the company stock will be 15 percent and 65 percent, respectively. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? Assume the risk-free rate was 2.76 percent.   10-YEAR ANNUAL RETURN…

A mutual fund that aggressively seeks capital growth: # O A. will have an MER that is higher than a global fund. OB. will have an MER that is approximately the same as a T-bill fund. OC. will have an MER that reflects the increased costs of research. OD. will have an MR similar to that of a fixed-income fund.

Which of the following would be the most appropriate benchmark to use for hedge fund evaluation?a. A multifactor model.b. The S&P 500.c. The risk-free rate.

A money market mutual fund or fund pools money exchange-traded from investors and purchases various money market instruments using those funds. Which of the following would be an appropriate instrument for such a fund that would offer the lowest risk for investors? O A. Preferred stock B. T-notes O C. Common stock D. High-yield bonds

1 . Which investor type would most likely have high tolerance for risk, long investment horizon, and low liquidity needs? a) pension funds b) commercial banks c)individuals d) mutual funds 2. Which manager most likely receives the highest compensation through fees? a) passive manager b) fixed income asset manager c) smart beta manager d) alternative asset manager 3. A no-load mutual fund will most likely charge which of the following fee? a) redemption fee b) up front fee c) management fee d) all of the above 4. The diversification between any two assets most likely to occur when which of the following conditions is met? a) Correlation between the two assets is less than 1.0 b) Correlation between the two assets is greater than 1 c) Correlation between the two assets is strictly negative d) Correlation between the two assets is strictly zero 5. When the economy is at the lowest point of the business cycle (the "through"), which are the best industries to invest in? a) Cyclical…

A3) Finance You are an investor who is looking to invest into a fund. Given the following investment criteria, which fund would be the best fit? You are a long-term investor (less worried about liquidity) You still need some flexibility in being able to purchase/redeem the investment at fair value You prefer a fund that undertakes some tactical asset allocation (changing its strategy based on market conditions) You are comfortable with higher risk. Passively managed, index fund Actively managed, closed-end fund Passively managed, open-ended fund Actively managed, open-ended fund

You Answered Correct Answer Jensen (1968) E proposed a very influential idea: when assessing mutual fund performance, we should compare funds only after accounting for the risks they take (rather than simply comparing returns). To see his argument, draw a SML, and put one dot above the SML (call it A) and one dot below it (call it B) while A and B have the same beta. (a) Describe the investment opportunities here. Buy B and sell A in a way that the portfolio has zero market beta Buy A and sell B in a way that the portfolio has zero market beta Just buy A to reach the highest possible return

assuming that the stock market is efficient which of the following statements is correct? A. investors can make money through investing in hot IPO‘s. B. skilled mutual fund managers can outperform the market by selecting undervalued stocks. C. investing in individual stocks is always more rewarding than in diversified portfolios. D. The best investment vehicle is market index funds.

Suppose that you are a fixed-income portfolio manager running a fully active managed fund. Which of the following statements are true? O The duration of your portfolio matches that of a bond benchmark or index. O The aggregate credit risk of your portfolio matches that of a bond benchmark or index. Your portfolio matches the duration of a bond benchmark or index, although other factors (such as sectors, quality, callability, etc.) may diverge. The aggregate interest-rate sensitivity of your portfolio matches that of a bond benchmark or index, although other factors (such as sectors, quality, callability, etc.) may diverge. None of the above statements are true.

Managed funds are often categorised by the type of investments purchased by the fund. These include capital stable funds, balanced growth funds and managed capital growth funds. For each of these funds, discuss the types of investments the fund might accumulate and explain the purpose of the investment strategies. If Jaleel is identified as a risk averse investor, which type of fund would you recommend Jaleel to consider investing?

How can a mutual fund manager who follows a momentum trading strategy expect to earn above - average return  1. Provided the stock price has been decreasing below the mean reversion point and other investors follow a mean reversion strategy the fund manager is likely to earn an above average return  2. If the fund manager follows a momentum strategy and buys a stock as the price is increasing while other investors follow a mean reversion strategy, then it is likely the stock price will continue to rise  3. Provided the stock price have been rising above the mean reversion point and other investors follow a mean reversion strategy, the fund manager is likely to earn an above average return  4. If the fund manager follows a momentum strategy and buys a stock as the price is increasing and other investors also follow a momentum strategy, then it is likely the stock price will continue to rise

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

Ashley is a cautions investor who cares a lot about diversification. Which action she is likely to pursue? Invest entire portfolio into mutual fund Invest entire portfolio into options Invest entire portfolio into REIT Invest entire portfolio into hedge fund

Which of the following are the MAIN REASONS for an investor to invest in managed funds? I -  To obtain a better return. II -  To diversify risks. III - Lack of time to look after their own investments. IV -  More freedom on stock selection. A) I, II and III only B)  I, II and IV only C) I, III and IV only D)  II, III and IV only

w Select the appropriate term to complete the sentences. A offers investors the opportunity to pool their investment dollars with a group of other investors, which in turn allows them the ability to purchase multiple security investments. The investments are collected into a single Mutual funds may prove to be a smarter investment option for the investor that prefers to investment risk.

As an individual investor, you have three funds to invest into. The first is an equity fund, the second is a corporate bond fund, and the third is a T-bill money-market fund (your risk-free asset).   Fund   Expected rate of return   Risk (Standard deviation)   Equity fund   16%   32%   Corporate bond fund   12%   18%   T-bill money market fund   2%   Correlation between equity fund and bond fund returns is 0.4.   Find the Expected return of the minimum variance portfolio formed from Equity and Bond funds