Assume a hedge fund has a fee structure of 4 plus 25%. What return is the hedge fund required to generate on the managed portfolio (before fees) if it is to provide investors with a return of 15% net of fees?
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Assume a hedge fund has a fee structure of 4 plus 25%. What return is the hedge fund required to generate on the managed portfolio (before fees) if it is to provide investors with a return of 15% net of fees?
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- Security A, standard deviation = 25% beta = 1.5 Security B, standard deviation = 40% beta = 1/3 If both securities have the same return, which should I invest in? Explain using knowledge of Capital Asset Pricing ModelSuppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to .4% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs?8. Assume the risk-free rate is 6.7% and the expected return on the market portfolio is 7.8%. Use the capital asset pricing model (CAPM) to find the required return for each of the securities in the table here, 7. Review On Click the icon to see the Worked Solution. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.) The required return for investment C is %. (Round to one decimal place.) The required return for investment D is %. (Round to one decimal place.) The required return for investment E is %. (Round to one decimal place.) 7: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security Beta A 1.34 в 0.93 0.13 0.96 E 0.67
- See AttachedGiven the current risk-free rate is 9% and the market return is 12%. TI Investment Beta A 0.65 1.12 C 0.87 1.19 E 0.56 Calculate the required rate of return for each of the investments by using the Capital Asset Pricing Model (CAPM). ii. i. If you invest an equal amount in each investment, what is the portfolio beta?QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…
- CAPM: The Treasury bill rate is 5%, and the expected return on the market portfolio is 12%. On the basis of Capital Asset Pricing Model: What is the risk premium of the market? What is the risk premium of an investment with a beta of 1.5? What is the required return of an investment with a beta of 1.5? If an investment has a beta of .8 and offers an expected return of 11% (think of it as its IRR), does it have a positive NPV?1. The return on market portfolio is 12% and the risk-free rate is 5%. If the beta coefficient is 1.4, what is the cost of capital using the capital asset pricing model? 2. Using the information in number 1 and if the beta coefficient increases to 1.6, the required rate of return will increase (decrease) by:Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 2.8% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 1 decimal place.)
- Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return? Investment A: total return= 10% with profitability 50% total return= 20% with profitability 50% Investment B: total return= 12% with profitability 50% total return= 18% with profitability 50% Investment A: total return= 5% with profitability 60%Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid-ask spreads amount to 0.5% of the value of the trade. If the portfolio turnover rate is 55%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 2 decimal places.) Reduction in portfolio returns %What is required return using the capital asset pricing model if a stock's beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in a risk-free Treasury Bill?