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: Portfolio Actual Avg. Return Standard Deviation Beta Manager Y 11.30 % 13.20 % 1.20 Manager Z 8.00 7.80 0.90 Additionally, your estimate for the risk premium for the market portfolio is 4.00 percent and the risk-free rate is currently 5.00 percent. Calculate each fund manager's average "alpha" (i.e., actual return minus expected return) over the five-year holding period. Round your answers to two decimal places. Manager Y: % Manager Z: % Choose the correct SML graph.

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: Portfolio Actual Avg. Return Standard Deviation Beta Manager Y 11.30 % 13.20 % 1.20 Manager Z 8.00 7.80 0.90 Additionally, your estimate for the risk premium for the market portfolio is 4.00 percent and the risk-free rate is currently 5.00 percent. Calculate each fund manager's average "alpha" (i.e., actual return minus expected return) over the five-year holding period. Round your answers to two decimal places. Manager Y: % Manager Z: % Choose the correct SML graph.

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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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: Stock fund (5) Bond fund (8) Expected Return 19% 12 Standard Deviation 32 15 The correlation between the fund returns is 0.11. a-1. What are the investment proportions in the minimum-variance portfolo of the two risky funds? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Portolo invested in the stock Portolo invested in the bond -2. What are the expected value and standard deviation of the minimum-variance portfolio rate of return? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Rate of Retum wrw ped Standard deviation
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Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk-free return during the sample period was 4%. Guardian Market Portfolio Average return 14 % 10 % Standard deviation of returns 27 % 21 % Beta 1.5 1 Residual standard deviation 4 % 0 % Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.)
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Consider a client with a 10% return objective. A financial adviser creates a policy statement for that client, identifies relevant financial securities that fit the risk return profile for this client, and drafts an optimal asset allocation using specialized optimization techniques. After one year, the financial adviser's recommendations produce a return of 10%. Question: Is this client satisfied with the performance of the portfolio?
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Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk- free return during the sample period was 5%. Average return Standard deviation of returns Beta Residual standard deviation Guardian 14% 26% 1.2 (0.80) 4% X Answer is complete but not entirely correct. Information ratio Market Portfolio Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.) 10% 21% 1 0%
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The average return, standard deviation, and beta for Fund A is given below along with data for the S&P 500 Index. Fund Average Return Standard Deviation Beta A 14.5% 24.6% 1.4 S&P 500 14.5% 21.3% 1 Risk-free 1% Calculate the Sharpe measure of performance for the S&P 500.
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