7. An investor is planning to add a hedge fund to his portfolio. The expected return is 12.8%. The current risk-free rate is 4.3% and the volatility of the portfolio is 9%. What is the Sharpe ratio? O 0.8837 0.9216 0.9444 0.9753

7. An investor is planning to add a hedge fund to his portfolio. The expected return is 12.8%. The current risk-free rate is 4.3% and the volatility of the portfolio is 9%. What is the Sharpe ratio? O 0.8837 0.9216 0.9444 0.9753

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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7. An investor is planning to add a hedge fund
to his portfolio. The expected return is 12.8%.
The current risk-free rate is 4.3% and the
volatility of the portfolio is 9%. What is the
Sharpe ratio?
O 0.8837
0.9216
0.9444
0.9753

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8 Consider the following monthly returns. X is a hedge portfolio. MKTRF, SML and HML are factors from the Fama and French 3-factor model. X MKTRF SML HML 0.190 0.050 0.080 0.090 0.050 0.000 0.020 -0.010 0.010 -0.030 -0.030 -0.020 0.120 0.060 0.060 0.050 0.040 0.040 0.050 0.060 0.040 0.000 0.040 0.030 0.170 0.050 0.100 0.050 0.060 0.040 0.040 0.050 0.070 0.030 0.080 0.070 0.070 0.030 0.070 0.040 0.100 0.000 0.010 0.020 0.020 0.010 0.040 0.040 Required: Using the Fama and French 3-factor model, calculate the coefficient on MKTRF for hedge portfolio X:
The beta on risky asset A is 1.8 and the beta on risky asset B is 1.1. The expected return on the market portfolio is 10% and the risk free rate of return is 4%. Consider a portfolio comprising the two risky assets and the risk-free asset where you invest 50% in risky asset A and 30% in risky asset B. What is (i) the beta of a portfolio and (ii) the expected return of the portfolio? a None of the above b (i) 0.97 and (ii) 9.82% c (i) 1.23 and (ii) 9.82% d (i) 1.23 and (ii) 11.38% e (i) 0.97 and (ii) 11.38%
Kk.177.
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9. Plot the following risky portfolios on a graph: B 10 11 Portfolio A Expected return, % 8 Standard Deviation, % 13 C D E F 12.5 14 16 20 15 19 19 22 G 20 25 H 23 33 a) Which of these portfolios are efficient? Which portfolios are inefficient? b) Suppose you can also borrow and lend at an interest-rate of 10 percent. Which of the above portfolios is the best one? c) Suppose you are prepared to tolerate a standard deviation of 15 percent. What is the maximum expected return that you can achieve if you cannot borrow nor lend? d) What is your optimal strategy, if you can borrow or lend at 10 percent and are prepared to tolerate a standard deviation of 15 percent? What is the maximum expected return that you can achieve?
Suppose you observe the following situation: Security Ruby Pearl Expected Return 14.9% 21.0% Beta 0.70 2.13 A). If these two securities are correctly priced, calculate the risk-free rate. Round your answer to 4 decimal points. B). If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-A). Round your answer to 4 decimal points. C). If the current market data shows that the risk-free rate is 3.52 percent, are these securities fairly priced? Comment on your answer. Round your answers to 4 decimal points. D). Calculate the expected return and beta of an equally weighted portfolio of these two securities. Round your answers to 3 decimal points.
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