Problem 6-26Suppose that the borrowing rate that your client faces is 11%. Assume that the Ss&P 500 index has an expected return of 16% andstandard deviation of 23%. Also assume that the risk-free rate is re= 5%. Your fund manages a risky portfolio, with the following details:Elrp) = 13%, o, = 18%.What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about aclient who is borrowing (y> 1)? (Negative values should be indicated by a minus sign. Do not round intermediate calculations.Round your answers to 2 decimal places.)y < 1y > 1

X is assumed to be the fees for investing in the fund. For y<1, x can be solved from: (E(r) - Rf…

Answered: Problem 6-26 Suppose that the borrowing…

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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Question 1) 니01K 12.t where m=1+7 B(t) =d() 12 m-l a) Mutual fund is carning an APR of What monthly deposit d is needed for a balnce 'of 2million dollars in 40years? Show work.
A portfolio manager believes that credit spreads are mean-reverting in the medium term. The manager observes the following information about four corporate issues: Issue 1 2 3 4 O O 1 2 3 Current Spread (bps) 6 month mean spread 4 100 60 130 200 Based on this information, which issue is best to purchase according to mean reversion analysis? 90 90 110 220 6 month spread st.dev. 10 25 15 30
3b. You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are informed by a broker the following estimates of current interest rate premium: . Inflation premium = 5% • Liquidity premium = 1% Maturity risk premium = 2% Default risk premium = 2% Disregard cross product terms, i.e., if averaging is required, use the arithmetic average. On the basis of these data, what is the real risk-free rate of return.
Omantel has a Beta = 1.5, the risk free rate on a treasury bill is currently 4.25% and the market return has averaged 18.45%.Calcualte cost of equity. Select one: a. 22.45% b. 25.55% c. 21.45% d. 21.34% e. None
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
5. Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. At the same time the efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. The risk- free rate of interest is 5%. The Sharpe ratio for your portfolio is closest to: A) 1.2. B) 0.6. C) 1.0. D) 0.7.
This question must be answered using APT i think
Verify ASAP
#39 Kara Zor-El has been advised that the Build Up Method is the most appropriate for determining a required rate of return for Steel, Inc. Currently, the Treasury band rate is 2.50%, the equity risk premium is 6.75%, the correlation risk premium is 5.75%, the micro-cap risk premium is 4.50%, the earnings risk premium is 3.25%, the start-up risk premium is 5.50%, and the seasonal risk premium is 3.75%. Using the Build-Up Method for determining the cost of capital, what is the required rate of return for Steel, Inc.? O A 13.75% O B. 17.00% O C. 18.25% O D. 19.25% O E. 20.50%
The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors: Investment b1 b2 X 1.75 0 Y −1.00 2.00 Z 2.00 1.00 We assume that the expected risk premium is 7.8% on factor 1 and 11.8% on factor 2. Treasury bills obviously offer zero risk premium. According to the APT, what is the risk premium on each of the three stocks? Suppose you buy $500 of X and $125 of Y and sell $375 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? Suppose you buy $200 of X and $150 of Y and sell $100 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? Finally, suppose you buy $400 of X and $50 of Y and sell $200 of Z. What is your portfolio's sensitivity now to each of the two factors? And what is the expected risk premium?
5

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