Ve are attempting to compare the performance of two portfolio managers. Based on data gathered for the past five years, the following relevant information for these managers' portfolios have been obtained (summarized in the table). Note that the market risk premium (MRP) is 5%, and the risk-free rate is 3%. Ascertain what the equilibrium expected rate of return on each portfolio would have been, based on systematic risk. (9.5%; 6%) Portfolio Manager X Manager Y Actual Ave R 9.40% 6.50% a 10.00% 8.00% B 1.3 0.6 Using the information in the previous problem, calculate the "Alpha" for each of the portfolio managers for the five-year period under consideration. (-0.10%; +0.50% )

Ve are attempting to compare the performance of two portfolio managers. Based on data gathered for the past five years, the following relevant information for these managers' portfolios have been obtained (summarized in the table). Note that the market risk premium (MRP) is 5%, and the risk-free rate is 3%. Ascertain what the equilibrium expected rate of return on each portfolio would have been, based on systematic risk. (9.5%; 6%) Portfolio Manager X Manager Y Actual Ave R 9.40% 6.50% a 10.00% 8.00% B 1.3 0.6 Using the information in the previous problem, calculate the "Alpha" for each of the portfolio managers for the five-year period under consideration. (-0.10%; +0.50% )

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 are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviation for five different well-diversified portfolios of risky assets. Portfolio Expected return (%) Standard deviation (%) 7.8 10.5 R 10 14 S 4.6 11.7 18.5 6.2 7,5 a. For each portfolio, determine the Sharpe ratio. Assume that the risk free rate is 3%. b. Using your analysis in part (a), explain which of these five portfolios is most likely to be the market portfolio. Draw up the Capital Market Line Equation. c. If you are willing to make an investment with a standard deviation of 7%, is it possible for you to earn 7%? d. What is the minimum risk level that would be necessary for an investment to earn 7%. What is the composition of the portfolio along the CML that will generate the 7% return. e. Suppose you are now willing to make an investment with a standard deviation of 18.2%. Determine what would be the investment proportions in the risk free asset and…
You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviation for five different well-diversified portfolios of risky assets. Portfolio Expected return (%) Standard deviation (%) Q 7.8 10.5 R 10 14 S 4.6 5 11.7 18.5 6.2 7.5 a. For each portfolio, determine the Sharpe ratio. Assume that the risk free rate is 3%. b. Using your analysis in part (a), explain which of these five portfolios is most likely to be the market portfolio. Draw up the Capital Market Line Equation. c. If you are willing to make an investment with a standard deviation of 7%, is it possible for you to earn 7%? d. What is the minimum risk level that would be necessary for an investment to earn 7%. What is the composition of the portfolio along the CML that will generate the 7% return. e. Suppose you are now willing t f. Devise how would you apply portfolio performance evaluation and attribution analysis in practice. Illustrate with suitable…
1. Given the following summary statistics, Mean S.D. 1.235 0.997 Asset A 0.52 Asset B. 0.44 (a) If the correlation between the two financial series is 0.25. What are the optimal portfolio weights to minimize risk? (b) What are the expected return and standard deviation of the optimal port- folio? (c) Compute the 1% Value-at-Risk for the next 5 days (d) Compute the expected shortfall
Using the data in the following table, LOADING... , consider a portfolio that maintains a 75% weight on stock A and a 25% weight on stock B. a. What is the return each year of this portfolio? b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. Question content area bottom Part 1 a. What is the return each year of this portfolio? Enter the return of this portfolio for each year in the table below: (Round to two decimal places.) Year 2010 2011 2012 2013 2014 2015 Portfolio enter your response here% enter your response here% enter your response…
You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% c) Explain whether you can conclude from the info. In Part b if: (1) either manager outperformed the other on a risk-adjusted basis, and (2) either manager outperformed market expectations in general Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8
You are evaluating the performance of two portfolio managers, and you have gathered annual return data for the past decade: Year Manager X Return (%) Manager Y Return (%) 1 -1.5 -6.5 -1.5 -3.5 3 -1.5 -1.5 4 -1.0 3.5 5 0.0 4.5 4.5 6.5 7 6.5 7.5 8 8.5 8.5 13.5 12.5 10 18.5 14.5 a. For each manager, calculate (1) the average annual return, (2) the standard deviation of returns, and (3) the semi-deviation of returns. Do not round intermediate calculations. Round your answers to two decimal places. Average annual return Standard deviation of returns Semi-deviation of returns Manager X % % % Manager Y % % % b. Assuming that the average annual risk-free rate during the 10-year sample period was 3.0%, calculate the Sharpe ratio for each portfolio. Based on these computations, which manager appears to have performed the best? Do not round intermediate calculations. Round your answers to three decimal places. Sharpe ratio (Manager X): Sharpe ratio (Manager Y): Based on Sharpe ratio -Select- )…
If a given stock in the portfolio had established 1.23 beta; the related expected return is at 11.7percent, and 3.5percent is the current earning of a risk-free asset; a. Determine the expected return on a portfolio that is equally invested in the two assets? b. If a portfolio of the two assets has a beta of 0.7, what are the portfolio weights? c. If a portfolio of the two assets has an expected return of 9%, what is its beta? d. If a portfolio of the two assets has a beta of 2.46, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Discuss.
During a particular year, the T-bill rate was 6%, the market return was 14%, and a portfolio manager with beta of .5 realized a return of 10%.a. Evaluate the manager based on the portfolio alpha.b. Reconsider your answer to part (a) in view of the Black-Jensen-Scholes finding that the security market line is too flat. Now how do you assess the manager’s performance?
Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: Aaron owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Aaron's portfolio value consists of HDS's shares, and the balance consists of BSB's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence 0.20 0.35 0.45 Strong Normal Weak Happy Dog Soap 17.5% 10.5% -14% • The expected rate of return on Happy Dog Soap's stock over…
5. You are evaluating the performance of two portfolio managers, and you have gathered annual return data for the past decade: Manager X Return (%) Manager Y Return (%) Year -6.5 -1.5 -1.5 -3.5 -1.5 3 -1.5 4 -1.0 3.5 0.0 4.5 4.5 6.5 6.5 7.5 8.5 8.5 13.5 12.5 10 17.5 13.5 a. For each manager, calculate (1) the average annual return, (2) the standard deviation of returns, and (3) the semi-deviation of returns. b. Assuming that the average annual risk-free rate during the 10-year sample period was 1.5 percent, calculate the Sharpe ratio for each portfolio. Based on these computations, which manager appears to have performed the best? c. Calculate the Sortino ratio for each portfolio, using the average risk-free rate as the minimum acceptable return threshold. Based on these computations, which manager appears to have performed the best? d. When would you expect the Sharpe and Sortino measures to provide (1) the same per- formance ranking or (2) different performance rankings? Explain.
You are given the following data: Risk-free rate is 4.1 percent, market return is 6.5 per cent, and market volatility is 12.2 per cent. The return of a portfolio is 11 per cent, its volatility is 15.2214 per cent, and its beta is 0.7. Calculate the measure called the Information ratio. A. 0.193 B. 0.414 C. 0.548 D. 4.500
You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data:. You have been told that you can create two portfolios-one consisting of assets A and B and the other consisting of assets A and C-by investing equal proportions (50%) in each of the two component assets. a. What is the average expected return, r, for each asset over the 3-year period? b. What is the standard deviation, s, for each asset's expected return? c. What is the average expected return, rp, for each of the portfolios? d. How would you characterize the correlations of returns of the two assets making up each of the portfolios identified in part c? e. What is the standard deviation of expected returns, Sp, for each portfolio? f. What would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or enhance return?

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