1. There are two mutual funds, A and B with the following information, R₁ Security The Market The Riskfree Bond 0.08 0.03 Mutual Fund A Mutual Fund B 0₁ 0.20 0.07 I 0.09 (iii) 0.12 0.30 Pim (i) (iv) (vi) (vii) (viii) 1.2 where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM holds, with fund A being efficient. (a) What are the answers to (i)-(v) above without doing any computation? (b) From given information, compute (vi) and (vii) in the table above. (c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by the CAPM] B₁ (ii)

1. There are two mutual funds, A and B with the following information, R₁ Security The Market The Riskfree Bond 0.08 0.03 Mutual Fund A Mutual Fund B 0₁ 0.20 0.07 I 0.09 (iii) 0.12 0.30 Pim (i) (iv) (vi) (vii) (viii) 1.2 where σ; is the standard deviation, and pim is the correlation with the market portfolio. Assume that the CAPM holds, with fund A being efficient. (a) What are the answers to (i)-(v) above without doing any computation? (b) From given information, compute (vi) and (vii) in the table above. (c) If you are using the CAPM as a benchmark, which fund should you buy? [hint: what is the return implied by the CAPM] B₁ (ii)

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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Suppose a portfolio is given as follows: Investment Name ABC Corn Mill X-Treme Manufacturing b.) 3.6% Ob.) none listed a.) none listed a.) 4.5% a.) 4% b.) 4% b.) 3.4% Weight a.) 5% 0.4 0.6 a.) What is the expected return of the portfolio? b.) What is the standard deviation of the portfolio if the correlation is +0.4? Select the most appropriate responses below for parts a.) and b.). Expected Return 2% 7% Standard Deviation 2% 5%
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 16.00% бр 32.00% 15.00 27.00 7.30 17.00 11.30 5.80 22.00 0 Bp 1.90 1.25 0.75 1.00 0 Assume that the tracking error of Portfolio X is 13.40 percent. What is the information ratio for Portfolio X? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places. Information ratio
(c) Which security will you choose to put in your portfolio? Explain. (d) Calculate the covariance and correlation of coefficient for the above securities. (e) Are the above securities being a good combination in the portfolio? Justify. Note: 1Please clear question answer no Whois one (c), (d) & (e) 2. No need excel formula
The FTSE 100 Index is an example of a benchmark for measuring the performance of an Equity fund. What is the role of a benchmark in measuring performance of a fund? Give an example of a Bonds Benchmark.
Which of the following are characteristics of money market securities? I. Long term maturities. II. Low default risk. III. Highly Marketable. IV. Very liquid. A. I and III only. B. II and III only. C. II, III and IV only. D. I, II, III and IV
(c)) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and an equity security E. What would the portfolio strategy be when Wp = 2 and ba WE = -1? 38 (33) -0.5 Expected Return 13% 8% Debt Fund 0 (ebenso) esenicut adol leu@ ledol (loorba (ognerloxel) Ismet tametnl Equity Fund 1.0 0 OC) becida nieu to 2.0 w (stocks) AB -1.0 68 XO.YOUTS RO w (bonds)=1-w (stocks) 15 V10 anollesup Figure 7.3 Portfolio expected return as a function of investment proportions la 21101TO
CASE 3 (6 marks): The following graph shows the efficient frontier for the portfolio containing x, y and z securities EFFICIENT FRONTIER 0.00525 D 0.00475 В A 0.00425 W 0,00375 0.00325 0.00275 0.006 0.0065 0.007 0.0075 0.008 0.0085 op 3 а) Which combination of the portfolio is most efficient or the closest to optimal, A, B, C or D and why? Additionally, explain the difference between each of these portfolios. 3 b) If the star represents portfolio E, is it better than B? Explain why or why not. 3 c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not. ERP
Find the weights of the two pure factor portfolios constructed from the following three securities: r1 = .06 + 2F¡ + 2F, r2 = .05 + 3F, + IF, r3 = .04 + 3F, + OF, Then write out the factor equations for the two pure factor portfolios, and determine their risk premiums. Assume a risk-free rate that is implied by the factor equations and no arbitrage.
Given a simple world with two assets, a bond fund and a stock fund, clearly detail the steps involved in arriving at the 1) efficient frontier, and 2) market (optimal) portfolio.
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?
c. Which security will you choose to put in your portfolio? Explain. d. Calculate the covariance and correlation of coefficient for the above securities. e. Are the above securities being a good combination in the portfolio? Justify.
Consider the information on the market, the risk-free asset, and a mutual fund. You want to build a two-asset portfolio comprising the market portfolio and the risk-free asset such that your portfolio beta is the same as the mutual fund. What is the portfolio weight on the market in your portfolio? Mutual Fund Market Risk Free E(k) 11.1% 8.5% 2.0% Beta 1.4 1 0

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