### 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

See similar textbooks

Related questions

Q: t 0 ances A pension fund manager is considering three mutual funds. The first is a stock fund, the…

A: Solution: Variance of stock= 0.28 × 0.28 = 0.0784 Variance of bond = 0.17 × 0.17 = 0.0289 Covariance…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: Minimum variance portfolio theory entails choosing a combination of investments aimed at minimizing…

Q: Problem 6-6 (Algo) Consider the following table: Scenario Severe recession Mild recession Normal…

A: Mean return refers to the return earned by the investors on the investment in the portfolio by…

Q: None

A: Step 1: Find the mean of the stock fund (we know this is a probability distribution because the sum…

Q: The following data are available relating to the performance of Sooner Stock Fund and the market…

A: Variables in the question:Average return of sooner= 20%Standard deviation of sooner = 44%Risk free…

Q: Consider the following funds and the market portfolio: Bell Fund Cloche Fund Tintinnabulum Fund…

A: The question is related to the Portfolio Management. The details are given along with the ranking.

Q: Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Required:…

A: Mean return refers to the total of all the values as return to be earned over investments in a…

Q: ou have decided to invest in three mutual funds: one in equities, one in long corporate and…

A: Risk free rate = 5% Expected return on equities = 0.15 Expected return on bonds = 0.06 Standard…

Q: 4. Compare the actual 12-month ROR (Please show your work.) of MF Z and its required rate of return,…

A: The question can be answered by determining the expected return for the stock using the capital…

Q: Expected Return SD (s) Correlation Coefficient Bond Fund 10% 10% -0.2 Stock Fund 16% 30%…

A: Formula Weight of stock fund = [SD12-P1,2*SD1*SD2]/[SD12+SD22-2*P1,2*SD1*SD2] Where SD1 - Standard…

Q: The data for two portfolio L and S are as follows: Expected Return Portfolio L S 10 4 Beta 1.2 0.8…

A: A position that involves buying the stock is recognized as a long fund, however, the position that…

Q: None

A: The Sharpe ratio of the best feasible CAL is 0.6561.

Q: Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Mean…

A: Here, Stock Fund Bond FundScenarioProbabilityRate of ReturnRate of ReturnSevere…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: Formulas:

Q: In a particular year, a fund manager made the following investments in the following asset classes…

A: WeightReturnBonds40%5%Stocks60%18%WeightReturnBonds (BOND INDEX)70%3%Stocks (STOCK INDEX)30%12%

Q: You have been given the following return information for a mutual fund, the market index, and the…

A: Introduction:Jensen's alpha is used for calculating the return on a portfolio in excess of its…

Q: arpe ratic

A: Formula to calculate Sharpe ratio is: Sharpe ratio = Expected return on investment - Risk free…

Q: A mutual fund had the following returns: Year 1: 20% Year 2: -20% Year 3: 10% Year 4: -8% Year 5:…

A: The average annual return (AAR) is a percentage that represents a mutual fund's historical average…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: The Sharpe Ratio helps analysts in measuring the increase in expected return per unit of additional…

Q: State Probability Return on A Return on B Boom .20 20% 5% Normal .50 10% 8% Bust .30 8% 12% What is…

A: The expected return of portfolio can be calculated as the sum of weighted average return of each…

Q: Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30…

A: Hence the stock fund mean return is 10.35%.The mean return of stock fundt is calculated by…

Q: You have decided to invest in three mutual funds: one in equities, one in long corporate and…

A: Optimal Risky Portfolio: CAL is tangent to the efficient frontier, and this point represents the…

Q: 4 Suppose you are the money manager of a 14.24 million investment fund the fund ansists of four…

A: StockInvestmentBetaA$520,000.001.5B$500,000.00-0.56C$1,320,000.001.2D$1,900,000.000.75total$4,240,00…

Q: Calculate Quantitative's stock selection return contribution.

A: We can determine the stock performance attributed to stock selection using the formula below:

Q: Which one of the following funds should be viewed as less attractive when held in a large,…

A: Portfolio A portfolio includes a group of a variety of financial assets. The main aim of investing…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: The portfolio is the combination of different securities. These securities include stocks, bonds,…

Q: Problem 7-7 A pension fund manager is considering three mutual funds. The first is a stock fund, the…

A: Step 1: Determine the optimal weightsThe weights of the stock fund (S) and bond fund (B) in the…

Q: What are the Sharpe and Treynor ratios for the fund? Note: Do not round intermediate calculations.…

A: Risk and return are essential financial principles. The term “risk” refers to the uncertainty and…

Q: Problem 6-26 Suppose that the borrowing rate that your client faces is 11%. Assume that the Ss&P 500…

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

Q: compared to the company stock?

A: “Since you have asked multiple question, we will solve the first question for you. If youwant any…

Q: Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in…

A: To solve this question, we first need to determine the optimal risky portfolio. Optimal risky…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: The expected return of the portfolio refers to the average profit provided by the portfolio to its…

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…

A: Given, Risk-free rate = 8% Stock expected return = 17% Stock standard deviation = 30% Bonds expected…

Q: Step bay step

A: short-term investment fund (A) Mean=2.00%standard deviation=0.30%Intermediate- term fund (B) Mean…

Q: Exhibit 25-11 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) The last year's performance…

A: Hi there, thanks for posting the questions. But as per our Q&A guidelines, we must answer the…

Q: Consider the following funds and the market portfolio: Bell Fund Cloche Fund Tintinnabulum Fund…

A: The question is related to Portfolio Management. The detals are given.

Q: Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Required:…

Q: Problem 13-19 Performance Metrics (LO1, CFA7) You have been given the following return information…

A: The Sharpe and Treynor Ratios are both used to calculate the risk-adjusted return on investment. The…

Q: Required: You manage an equity fund with an expected risk premium of 10.4% and a standard deviation…

A: The Portfolio consist of different source of investment with different expected returns and…

Q: You have decided to invest in three mutual funds: one in equities, one in long corporate and…

A: Risk free rate = 5% Expected return of equity = 0.15 Expected return of bonds = 0.06 Standard…

Q: Consider the recent performance of the Closed Fund, a closed-end fund devoted to finding…

A: NAV - NAV stands for Net asset value which means it is the market value of the units(of the fund)…

Q: Consider the following table: Scenario Severe recession Mild recession Normal growth Boom Required:…

A: The variance is the degree of dispersion of a group of values within a dataset. It represents the…

Q: Expected Return SD (s) Correlation Coefficient Bond Fund 10% 10% -0.2 Stock Fund 16%…

Q: Problem 7-4 (Algo) A pension fund manager is considering three mutual funds. The first is a stock…

A: Expected return of Stock funds (S)17%Expected return of Bond funds (B)13%Risk-free rate8.00%Standard…

Q: Fund Beta Deviation (%) Return (%) Rf (%) XXX 1.07 5.13 19 6 YYY 1.02 4.28 17 6 ZZZ 0.86…

A: The question is based on the concept of Portfolio management

Question

### Risk and Return Analysis

The 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 Statement

Rank the three options (including the market) from highest to lowest in terms of reward to risk based on total risk.

### Options

1. **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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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.)
3
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%
INV4 4a. Consider the following funds and the market portfolio: Bell Fund Cloche Fund Tintinnabulum Fund Market Portfolio Average return 18% 12% 30% 15% Standard deviation 25% 15% 30% 20% Beta 1.25 0.6 2.5 The risk-free return during the sample period was 5%. Using Sharpe’s, Treynor’s, and Jensen’s measures, rank the results for each of the funds.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS