### Risk and Return AnalysisThe table below provides data for two types of investment funds, mid cap and large cap, along with market-related information.| | Mid Cap Fund | Large Cap Fund ||----------------------------|--------------|----------------|| **Return** | 16% | 14% || **Beta** | 1.6 | 0.8 || **Standard Deviation** | 3.6 | 2.6 |Additional Market Information:- **Expected Return of the S&P 500**: 12%- **Standard Deviation of the Market**: 2.8- **Risk-free Rate**: 4%### Problem StatementRank the three options (including the market) from highest to lowest in terms of reward to risk based on total risk.### Options1. **large cap, market, mid cap**2. **mid cap, large cap, market**3. **market, mid cap, large cap**4. **large cap, mid cap, market**5. **mid cap, market, large cap**When considering investments, understanding the balance between return and risk is crucial. Utilize this data to guide investment decisions by evaluating the reward-to-risk ratio.

Reward to risk based on total risk = (Expected Return - Risk free rate)/ Standard deviation

Mid cap fund Large cap fund Return 16% 14% Expected return of the S&P 500 12% Beta 1.6 .8 Standard deviation of the market = 2.8 Standard Deviation 3.6 2.6 Risk-free rate = 4% Rank the three funds from highest to lowest in terms of reward to risk based on total risk.

Mid cap fund Large cap fund Return 16% 14% Expected return of the S&P 500 12% Beta 1.6 .8 Standard deviation of the market = 2.8 Standard Deviation 3.6 2.6 Risk-free rate = 4% Rank the three funds from highest to lowest in terms of reward to risk based on total risk.

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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6. Fund A Fund B Expected Ret. E(r) 13.4 % . 10.8% Standard Deviation - 13 %. 15.8% The table above contains expected annual returns for funds A and B. Assuming that the risk free rate is 2.55% and that the correlation of returns between funds A and B is -0.18, calculate the weight of Fund A in the minimum - variance two - risky asset portfolio comprised of funds A and B.
D4)
The following performance data about the Big Gain Fund & the S&P 500 appears below Big Gain S&P 500 Return 40% 22% Standard Deviation 32 % 20% Beta Value 1.26 1.00 The risk free rate is 5% Required i. Calculate the sharpe ratio ii. The Treynor measure iii. And Jensen's iv. Comment on the results obtained
O B *Book Problem Walk Through Suppose you are the money manager of a $4.24 mbon investment fund the fund consists of four stocks with the following investments and beta Stock Beta 1.50 (0.00) 1.25 8.75 W Investment $320,000 500,000 1.320,000 1,000,000 C D the market's required rate of retums 11% and the risk free rate is what is the fund's requered rate of retum De not found intermedate caldabone Round your answer to two decimal place
In the above $110K allocation problem, you decided to allocate 30% weight in A, 50% weight in B, 20% weight in C, and you want to find its AVG return. Which of the following is the appropriate method to find the mean (AVG) return on the $100K fund invested? a. Weighted Average (WAVG ) b. Simple Average c. Geometric Average d. Arithmetic Average
INV 1 6d You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Without the money market fund, what would be the weights of a portfolio on the best feasible CAL, composed of the equities and bond funds which would be expected to return 10%, and what would be its standard deviation?
Problem 7-8 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 4%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 23% 14 Standard Deviation The correlation between the fund returns is 0.12. Sharpe ratio 29% 17 What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 4 places.) Check my work
INV 1 6f You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Compare the portfolios in #4 and #5. Is this consistent with what you would expect when adding the T-bill money market fund as essentially the risk-free asset?
Problem 6-6 (Algo) Consider the following table: Scenario Probability Stock Fund Rate of Return Bond Fund Rate of Return Severe recession 0.10 -44% -11% Mild recession 0.20 -24% 17% Normal growth 0.40 29% 10% Boom 0.30 34% -7% Required: a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.) b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
23. What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% additional funds borrowed at the risk-free rate of 6%? A. 18.6% B. 19.6% C. 21.6% D. 24.0%
3. Problem 8.07 (Portfolio Required Return) BA eBook Problem Walk-Through Suppose you are the money manager of a $5.02 million investment fund. The fund consists of four stocks with the following investments and betas: Investment $ 260,000 600,000 1,560,000 2,600,000 с D 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. % Stock A B Beta 1.50 (0.50) 1.25 0.75
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