In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broadbased fund of stocks and other securities with an expected return of 12% and a volatility of 25%. 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 19%, and a correlation of 0.6 with the Tanglewood Fund. Calculate the required return that make venture capital fund an attractive addition a. 20.37% O b. 10.11% c. C. 7.10% O d. 13.03%

In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broadbased fund of stocks and other securities with an expected return of 12% and a volatility of 25%. 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 19%, and a correlation of 0.6 with the Tanglewood Fund. Calculate the required return that make venture capital fund an attractive addition a. 20.37% O b. 10.11% c. C. 7.10% O d. 13.03%

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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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
You are a Portfolio Manager who has a Stock Fund, a Bond Fund and a Treasury Bill Fund. The Stock Fund has an expected return of 12.2% and an expected volatility of 18.8%. The Bond Fund has an expected return of 4.3% and an expected volatility of 7.1%. The T-Bill fund will yield a return of 2.7%. The correlation coefficient between the two risky assets is 0.19. If you created a Risky Portfolio from the two risky assets and if your allocation was 40/60 Bonds/Stocks, what would be the expected return of the Risky Portfolio? Group of answer choices 9.04% 7.46% 8.25% 6.34% None of the above
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 5%. The characteristics of the risky funds are as follows: Stock fund (5) Bond fund (8) Standard deviation Expected Return 20% 11 The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Money market fund Stocks Bonds Standard Deviation 35% 15 % b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested I
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…
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. Year Fund Market Risk-Free 2018 15.13% -25.5% 2% 2019 25.1 2020 12.5 2021 6.4 2022 -1.26 19.6 9.7 7.6 4 2 4 -2.2 3 What are the Sharpe and Treynor ratios for the fund? Note: Do not round intermediate calculations. Round your answers to 4 decimal places.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Standard Deviation Stock fund (S) Bond fund (B) 30% 15 The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds? Expected Return 20% 12 Complete this question by entering your answers in the tabs below. Required A Money market fund Stocks Bonds Required B What is the proportion invested in the money market fund and each of the two risky funds? Note: Round your answers to 2 decimal places. Proportion Invested % %
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return 17% 11% Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.30. Portfolio invested in the stock Portfolio invested in the bond Expected return Standard deviation Required: Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places.) % Standard Deviation 32% 23% % %
You have been given the following return Information for a mutual fund, the market Index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.93. Year 2018 2019 2020 2021 2022 Fund -23.60% 25.10 14.40 7.00 -2.40 Market -44.50% 21.50 15.40 9.20 -6.20 Jensen's alpha Information ratio Risk-Free 1% 3 2 6 2 Calculate Jensen's alpha for the fund, as well as Its Information ratio. Note: Do not round Intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Investment Stock Stock's Beta Coefficient A $160 million 0.7 B 120 million 1.5 с 80 million 2.2 D E 80 million 60 million 1.0 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 -28% 0.2 0 0.4 13 0.2 0.1 32 48 a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) I. n = 1.5% + (11.5%)bi II. 4.0% + (10.9%) bi III. n = 5.5% + (9.6%) bi IV. n = 5.5% + (10.9%)bi V. n = 4.0% + (9.6%)bi V v b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. 16.13% c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position…

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