Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $210 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per yea and T-bills pay 7% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). a-1. What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decim places.) Portfolio in bills % a-2. What percentage of the portfolio should be placed in equity? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in equity %

Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $210 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per yea and T-bills pay 7% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). a-1. What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decim places.) Portfolio in bills % a-2. What percentage of the portfolio should be placed in equity? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in equity %

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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You have the following data on a portfolio. You have decided to invest 11% of your money in Asset A and 89% in Asset B. Find the return on your portfolio. Asset Returns in Bust and Boom Economy Probability Return A Bust 13% 17% Boom 87% 20% O 19.61% O 31.97% O 30.61% O27.68% 25,79% Return B 5% 36%
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29 You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $240 million, and you promise to provide a minimum return of O%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 4% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) 3 01:56:49 Portfolio in bills a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do nat round intermediate calculations and round your final percentage answer to 2 decimal places.) Portfolio in equity % b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do…
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000with a probability of 25%, $125,000 with a probability of 50%, or $140,000 with a probability of 25%.The alternative risk-free investment in T-bills pays 4% per year. a) If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b) What is the Sharpe ratio of the portfolio if you can purchase it at the price calculated above?
Assume that you have just received information from your investment advisor that your portfolio has reached a value of $1,250,000. Your portfolio consists of three stocks, as follows: Stock Amount Invested % of Total Beta A $250,000 20% 1.12 B $400,000 32% .85 C $600,000 48% .55 Total: $1,250,000 100% Calculate the beta of this investment portfolio. Assume that the expected market return ( r m ) is 9 percent and the expected risk- free rate ( RF ) is 2 percent. What is the expected return ( r j ) for this investment portfolio?
Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 2.20%. You now receive another $11.50 million, which you invest in stocks with an average beta of 0.82. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.)
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $70 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 6.2% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your…
You are choosing between these four investments, and you want to be 95% certain that you do not lose more than 18.00% on your investment. Which investments could you choose? Average Return Standard Deviation of Returns S&P TSX 10.32% 16.35% S&P 500 in CAD 12.10% 17.00% Long-Term Gov't of Canada Bonds 7.89% 10.20% Which of the following have the lower bound of the estimated range greater than 18.00%? A. All of the Investments B. T-Bills only C. S&P TSX and S&P 500 in CAD D. Long-term Government of Canada Bonds and S&P 500 in CAD E. Long-term Government of Canada Bonds and T-Bills T-Bills 5.59% 3.93%
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 – 100 1-10 + 17 On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.44. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 11%, what is the net present value of the project?
State the return rate (in %) for your optimal portfolio.
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years 1-10 Cash Flow -100 +18 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.38. Assuming that the rate of return available on risk-free investments is 7% and that the expected rate of return on the market portfolio is 15%, what is the net present value of the project? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places. Net present value S 17.14 million

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