7. Assume you currently have all your wealth ($1MM) invested in the Vanguard 500 fund, and that you expect to earn an annual return of 7%, with a standard deviati returns of 20%. Since you have become more risk averse, you decide to shift $25- from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 1.5%. Esti

7. Assume you currently have all your wealth ($1MM) invested in the Vanguard 500 fund, and that you expect to earn an annual return of 7%, with a standard deviati returns of 20%. Since you have become more risk averse, you decide to shift $25- from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 1.5%. Esti

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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Consider a borrow-and-invest strategy in which you use $1 million of your own money and borrow another $1 million (at the t-bill rate) to invest $2 million in a market index fund. If the risk free interest rate is 5.52 percent and the expected rate of return on the market index fund is 12.68 percent, what is the risk premium on this borrow-and-invest strategy?
Finance
State the return rate (in %) for your optimal portfolio.
(Related to Checkpoint 7.1) (Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security One-year Treasury bills are currently paying 3.1 percent. Calculate the investment's expected return and its standard deviation Should Gautney invest in this security? Probability 0.10 0.50 Return -6% 1% 5% 9% 0.30 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) CID a. The investment's expected return is%. (Round to two decimal places)
You have the following cash flows for the firm; What is NPV, if discount rate is 10% ? CF0 = -433 (CF0 is always negative. It is your initial investment) CF1 = 969 CF2 = 697 CF3 = 824 CF4 = 727 CF5 = 922
14. You are interested in an investment fund with an expected annual rate of return of 15% and a standard deviation of 12% a year. If you invest $2 million in this fund, what is 95% VaR? In other words, there is 95% confidence that you will not lose more than ( ) over one year. How much money should be in the parentheses? Assume that the returns on the fund follow a normal distribution.
You are considering a risky investment that you expect will either be worth 115,000 in 1 year, or 65,000, with probabilities of 0.65 and 0.35 for each outcome, respectively. You could invest in riskless T-bills at 0.058. If you invest in this risky investment, you would expect to earn a risk premium of 0.091 Given this information, what would you be willing to pay for this investment? 84,856 78,059 79,001 73,655 82,693
Your Company, manager of the Gigantic Mutual Fund, knows that her fund currently is well diversified and that it has a CAPM beta of 1.0 The risk-free rate is 8% and the CAPM risk premium of 6.2%. She has been learning about measures of risk and knows that there are (at least) two factors: changes in industrial production index, δ1 and unexpected inflation, δ2 The APT equation is E(Ri) – Rf = [δ1 – Rf]bi1 + [δ2 – Rf]bi2, E(Ri) = 0.08 + [0.05]bi1 + [0.11]bi2. Required If she rebalances her portfolio to keep the same expected return but reduce her exposure to inflation to zero (i.e., bi1= 0) what will its sensitivity to the first factor become?
Consider when you decide to invest 40% of your money in risky portfolio P( with the expected return of 25% and standard deviation of 20%) and invest 60% of your money into a treasury bill) the rate of the TBill is 5%). Assume that in thi s investment you use all the money you have on your own without borrowing from outside. What's the sharp ratio? 0.670? 1.000? 1.625? 0.400?
A risky fund has an expected return of 10% and a standard deviation of 18%. the T-Bill Rate is 5%. An Investor allocates 110% of her retirement portfolio to the risky fund and -10% to T-Bills (recall the negative allocations to T-ills indicates borrowing at the risk free rate) What is the investor's risk aversion coefficient? (PLEASE SHOW WORK!!) A) 2.06 B) -0.71 C) 3.7 D) 1.40
4. Suppose you are a money manager of a $10 million investment fund. The fund is invested in three assets with the following investments and betas: Investment Beta 1.80 0.75 1.20 The remainder is invested in T-bills (risk free asset) with 3% return. a. If the market expected rate of return is 9% what is the fund's expected rate of return? b. Using Funds A and B, create a portfolio (report the portfolio weights and $ investment out of $10 million) with a 0.92 beta. Stock A B C $3,000,000 2,000,000 4,000,000
= Consider the following DB pension plan: market value of assets $300 million, projected value of liabilities = $450 million, liability duration (i.e., duration of liabilities) = 10. If the portfolio manager wants to hedge interest-rate risk, what should be the duration of her portfolio? 13 12 15 14 0000

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