BFN352 - 06 Problem set - Variations

Consider the following table which provides a comparison of the returns for a portfolio and its benchmark. Year 0 1 2 3 4 5 Return Alpha Sum Tracking Error Information Ratio Note: the numbers in red are negative b. Calculate the portfolio alpha in percentage terms c. Calculate the tracking error of the portfolio in percentage terms Portfolio Return 16% 9% -35% 22% 84% Required a. Calculate the annualised return of the portfolio and the benchmark in percentage terms d. Calculate the information ratio of the portfolio to 2 decimal places e. Determine to 2 decimal places the amount of Carhart alpha for the portfolio in percentage terms if: o the risk-free rate is 3.25%, o the return of the market is 9.20%, o the exposure to the value factor (when the premium is 3.15%) is 0.65 (ie 65%), o the exposure to the small cap factor (when the premium is 2.05%) is -0.12, and o the exposure to the momentum factor (when the premium is 46%) is 0.1. Benchmark Return 14% 7% -38% 18% 86%

Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio:     BENCHMARK   MANAGER A   MANAGER B       Weight Return WEIGHT RETURN WEIGHT RETURN   Stock 0.7 -4.7 0.7 -3.8 0.2 -4.7 % Bonds 0.2 -4.0 0.1 -2.2 0.6 -4.0   Cash 0.1 0.3 0.2 0.3 0.2 0.3     Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A’s actual portfolio, and (3) the overall return to Manager B’s actual portfolio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. Round your answers to two decimal places. Use a minus sign to enter negative values, if any.     Overall return Benchmark   % Manager A   % Manager B   %   Using attribution analysis, calculate (1) the selection effect, and (2) the allocation effect for both Manager A and Manager B. Using these numbers in conjunction with your results from Part a, comment on whether these managers have added value…

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA)=10% E(RB) = 15% (σA)=8% (GB) = 9.5% WA = 0.25 WB = 0.75 COVA.B = 0.006 What is the standard deviation of this portfolio? O 13.75% O 8.79% O 12.5% O 7.72%

Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Weight Return Weight Return Weight Return Stock 0.7 -4.8% 0.7 -3.9% 0.3 -4.8% Bonds 0.2 -3.1 0.1 -2.2 0.4 -3.1 Cash 0.1 0.3 0.2 0.3 0.3 0.3

Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGERB Weight Return Weight Return Weight Return Stock 0.7 -4.8% 0.7 -3.9% 0.3 -4.8% Bonds 0.2 -3.1 0.1 -2.2 0.4 -3.1 Cash 0.1 0.3 0.2 0.3 0.3 0.3 a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfolio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. Round your answers to two decimal places. Use a minus sign to enter negative values, if any. Overall return Benchmark Manager A % Manager B % Manager A has -Select- v the benchmark fund. Manager B has -Select- | the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect, and (2) the allocation effect for both Manager A and Manager B. Using these numbers in conjunction with your results from Part a, comment on whether…

The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07. Portfolio Return Beta P 0.15 1.00 0.05 Q 0.09 0.50 0.03 R. 0.21 1.30 0.10 0.18 1.20 0.06 Market 0.12 1.00 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Sharpe measure P Q R Market b. Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Treynor measure P Q R Market c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings. Portfolio Rank (Sharpe measure) Rank (Treynor measure) P |-Select- v |-Select- v Q -Select- v -Select- V R. -Select- V -Select- v -Select- v -Select- v Market -Select- v -Select- v -Select- v is poorly diversified since it has a high ranking based on the -Select- but a much lower ranking with the -Select-

The following portfolios are being considered for investment. During the period under consideration, RFR = 0.08.   Portfolio Return Beta σi P 0.14 1.00 0.05 Q 0.20 1.30 0.11 R 0.10 0.60 0.03 S 0.17 1.20 0.06 Market 0.12 1.00 0.04   Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places.   Portfolio Sharpe measure P   Q   R   S   Market     Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places.   Portfolio Treynor measure P   Q   R   S   Market

Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio.  How does the CV of the optimal portfolio compare with the CVs of its constituents?

What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after the decimal points. State your answer as a percentage point as 1.234.   Compute the Treynor measure for portfolio B. Round off your answer to three digits after the decimal point. State your answer as 1.234

2. Calculate the expected return and expected risk of the portfolio below given the Asset J and Asset K has a correlation coefficient of +0.8. Asset Asset J Asset K Expected Return 8.0% 14.0% Weighting 60% 40% Risk of each asset 12.0% 21.0%

Consider the following investments: Investment Expected return Standard deviationA                         5%                          10%B                          7%                           11%C                         6%                            12%D                         6%                            10% Which would you prefer between the following pairs:a) A and Db) B and Cc) C and D

Berdasarkan informasi tersebut a. Expected return Asset A b. Standard Deviation Asset A dan Asset B c. Portfolio AB Expected Return. d. Coefficient Correlation AB e. Portofolio AB Standard Deviation Please explain by Microsoft excel

Review the table below listing performance metrics for selected assets. The metrics are defined in the same way as in CAPM   Return  risk  beta riskless asset  4% 0% 0 Market Portfolio  9% 24% 1 Fund A 8% 33% 0.4 Fund B 11% 30% 1.5

The following portfolios are being considered for investment. During the period under consideration, RFR =0.07               Porfolio Return Beta                 P 0.15 1.00 0.05       Q 0.20 1.50 0.1       R 0.10 0.60 0.03       S 0.17 1.10 0.06       Market 0.13 1.00 0.04       Compute the Sharpe measure for each portfolio and the market portfolio Compute the Treynor measure for each portfolio and the market portfolio Rank the portfolios using each measure explaining the cause for any differences you find in the rankings.

Two investments, X and Y, have the characteristics shown below. E(X) = $70, E(Y)3D$120, o =7,000, a = 14,000, and ory =7,500 If the weight of portfolio assets assigned to investment X is 0.3, compute the a. portfolio expected return and b. portfolio risk. a. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio expected retum is $ (Type an integer or a decimal.) b. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio risk is approximately $. (Round to two decimal places as needed.)

6. Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Return Weight Weight Weight Return Return Stock 0.5 -4.0% 0.6 -5.0% 0.3 -5.0% Bonds 0.3 -3.5 0.2 -2.5 0.4 -3.5 0.1 Cash 0.3 0.3 0.3 0.3 0.3 Evaluation of Asset Management a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo- lio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from part (a), comment on whether these managers have added value through their selection skills, their allocation skills, or both.

a. Compute the expected rate of return on investment i given the following information: the market risk premium is 5%; Rf = 6%; βi = 1.2. b. Compute E(RM).

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Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2   0.1  0.9 0.223 A3 0.12  1.1 0.138 A4 0.08  0.8 0.125 Market 0.11     1    0.2 RFR 0.03     0       0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.   a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02     b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014     c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014     d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14     e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14

Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7% 0% Market 11.6 28 A 10.0 17 Required: a. Calculate the Sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.)   b. If the simple CAPM is valid, is the above situation possible?

Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security B, C, and D) (Hints: Assume that weights of B, C, and D are , respectively; the expected rate of return for Security B, C, and D is 9.9%, 1.2%, 7.3%, respectively)?     Prob. Security A Security B  Security C Security D Security E Recession 0.1 3.0% -29.5%  24.5%    3.5% -19.5% Below avg. 0.2 3.0%   -9.5%  10.5% -16.5%   -5.5% Average 0.4 3.0%  12.5%   -1.0%    0.5%    7.5% Above avg. 0.2 3.0%  27.5%   -5.0%  38.5%  22.5% Boom 0.1 3.0%  42.5% -20.0%  23.5%  35.5%

Compute the residual risk measure for portfolio A. Round off your final answer to three digits after the decimal point.      Compute the appraisal ratio for portfolio B. Round off your final answer to three digits after the decimal point.

Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF Market return, m Beta, b 5% 8% 1.3 The required return for the asset is %. (Round to two decimal places.)