Curious George, a mutual fund manager, has a P40 million portfoilio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. Hazel expects to receive an additional P60 million, which she plans to invest in additionai stocks. After investing the additional funds, he wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return? а. 1.68 b. 1.76 c. 1.85 d. 1.94 e. 2.04

Curious George, a mutual fund manager, has a P40 million portfoilio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. Hazel expects to receive an additional P60 million, which she plans to invest in additionai stocks. After investing the additional funds, he wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return? а. 1.68 b. 1.76 c. 1.85 d. 1.94 e. 2.04

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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Greta has risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the TSX/S&P Composite Index and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The TSX/S&P Composite Index risk premium is estimated at 5% per year, with a standard deviation of 20%. The hedge fund risk premium is estimated at 10% with a standard deviation of 35%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the TSX/S&P Composite Index and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. a-1. Assuming the correlation between the annual returns on the two portfolios is indeed zero, what would be the optimal…
A fund manager owns a portfolio of 10 stocks. Explain how the manager can reduce the systematic risk of his portfolio by 10% over the next year using futures. Will the expected return on the manager’s portfolio also drop by 10%? Is it possible for the manager to perfectly hedge his exposure to equity risk? Explain your answers.
In addition to risk-free securities, you are currently invested in the TanglewoodFund, a broad-based fund of stocks and other securities with an expected return of 14% and a volatility of 24%. Currently, the risk-free rate of interest is 3%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 20%, a volatility of 79 %, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's advice and put 50% of your money in the venture fund: a. What is the Sharpe ratio of the Tanglewood Fund? Answer (Already calculated): Sharpe ratio of the Tanglewood Fund is: 0.458 b. What is the Sharpe ratio of your new portfolio? c. What is the optimal Sharpe ratio you can obtain by investing in the venturefund? (Hint: Use Excel and round your answer to three decimal places.) Please use excel for last question, four people from chegg has gotten this question wrong. Please get it right
5. You manage an equity fund with an expected risk premium of 8% and an expected standard deviation of 10%. The rate on Treasury bills is 5%. Your client chooses to invest OMR70,000 of her portfolio in your equity fund and OMR30,000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client's portfolio?
Your client, Sandra is considering three assets: a bond mutual fund, a cryptocurrency ETF, and US Treasury bills. The annualized T-bill rate is 2%. The information below refers to the two risky assets. Expected return Standard deviation Bond mutual fund Cryptocurrency ETF 3% 10% Correlation coefficient 0 14% 20% (a) What are the proportions of each asset, in Sandra's optimal risky portfolio? (b) Suppose the return for each risky asset follows a normal distribution. What is the 1% value-at-risk for Sandra's optimal risky portfolio? Hint: P(Z<-2.326) = 0.01 where Z~N(0, 1).
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.7 B 120 million 1.4 C 80 million 2.1 D 80 million 1.0 E 60 million 1.4 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 4%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -26% 0.2 0 0.4 13 0.2 30 0.1 50 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 5.7% + (9.6%)bi ri = 5.7% + (9.5%)bi ri = 4.0% + (9.6%)bi ri = 2.1% + (9.0%)bi ri = 4.0% + (9.5%)bi Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a…
Suppose you manage a $4 million fund that consists of four stocks with the following investments: Beta Stock A 1.50 B -0.50 1.25 C D 0.75 If the market's required rate of return is 14% and the risk-free rate is 7%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. Investment $400,000 1,000,000 1,600,000 1,000,000 %
Greta has risk aversion of A = 5 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the TSX/S&P Composite Index and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The TSX/S&P Composite Index risk premium is estimated at 10% per year, with a standard deviation of 16%. The hedge fund risk premium is estimated at 8% with a standard deviation of 26%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the TSX/S&P Composite Index and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. a-1. Assuming the correlation between the annual returns on the two portfolios is 0.3, what would be the optimal asset allocation? (Do not…
D Suppose you are the money manager of a $4.28 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 340,000 1.50 B 700,000 C D 1,040,000 2,200,000 (0.50) 1.25 0.75 If the market's required rate of return is 12% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
A mutual fund manager has a $20 million portfolio with a beta of 0.75. The risk-free rate is 3.75%, and the market risk premium is 7.0%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 12%. What should be the average beta of the new stocks added to the portfolio? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.
Mr. Devine is a fixed-income portfolio manager. He forecast a cash outflow of $10 million in June and plans to sell his baseline bond portfolio. The fund currently is worth $10 million, has an “A” quality rating, duration of 7 years, weighted average maturity of 15 years, annual coupon rate of 10.25%, and YTM of 10.25% (note: the fund is selling at its par value). Suppose Mr. Devine is afraid that long-term interest rates could increase and decides to hedge his June sale by taking a position in June T-bond futures contracts when the June T-bond contract is trading at 80-16, and the T-bond most likely to be delivered on the contract has a YTM of 9.5%, maturity of 15 years, and a duration of 9 years （1）Using the price-sensitivity model, show how Mr. Devine could hedge his June bond portfolio sale against interest rate risk. （2）Suppose long-term interest rates increase over the period such that at the June expiration, Mr. Devine’s baseline portfolio (A-rated, 10.25% coupon rate, 15-year…

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