Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 18.1, Problem 2EQ
Which fund would you choose if you were considering investing the entire risky portion of your portfolios? What if you were considering adding a small position in one of these films to a portfolio currently invested in the market index?
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Would a market-neutral hedge fund be a good candidate for an investor’s entire retirement portfolio? If not, would there be a role for the hedge fund in the overall portfolio of such an investor?
a. Using the data in the table below and calculate the following performance measures.
i. Sharpe ratio
ii. Treynor measure
iii. Jensen's alpha
iv. M-squared measure
v. T-squared measure, and
vi. Appraisal ratio (information ratio)
Average Standard
Beta
Unsystematic
Fund
Return
Deviation Coefficient
Risk
A
0.240
0.800
0.900
0.220
0.017
B
0.200
0.170
0.450
C
0.380
0.290
0.400
0.290
1.200
0.074
0.260
0.180
1.100
0.026
E
0.900
0.121
F
0.460
0.190
0.180
0.153
0.120
0.320
1.100
G
0.250
0.700
Market
0.220
1.000
0.000
Risk-free
return
0.050
0.000
Chapter 18 Solutions
Essentials Of Investments
Ch. 18.1 - Prob. 1EQCh. 18.1 - Which fund would you choose if you were...Ch. 18.6 - Prob. 1EQCh. 18.6 - What would happen to the contribution of security...Ch. 18 - Prob. 1PSCh. 18 - Is it possible for a positive alpha to be...Ch. 18 - Prob. 3PSCh. 18 - Prob. 5PSCh. 18 - 6. stock price and dividend history are as...Ch. 18 - Prob. 7PS
Ch. 18 - Based on current dividend yields and expected...Ch. 18 - Consider the two (excess return) index~m0del...Ch. 18 - Prob. 10PSCh. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Conventional wisdom says that one should measure a...Ch. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Bill Smith is evaluating the performance of four...Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 21PSCh. 18 - Prob. 22PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - What is the Sharpe performance measure for...Ch. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CPCh. 18 - Prob. 12CPCh. 18 - Prob. 13CPCh. 18 - Prob. 14CPCh. 18 - Prob. 1WMCh. 18 - Prob. 2WMCh. 18 - Prob. 3WMCh. 18 - Prob. 4WMCh. 18 - Prob. 5WMCh. 18 - Prob. 7WM
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- If you knew that you can invest in a passive index fund, at a low cost, and capture all the returns of the market index, would that affect your opinion of the effectiveness of a strategy using technical analysis or fundamental analysis?arrow_forward2. Based on your readings, summarize the key features of the markets with the guide questions below. Features Equity Market Fixed-Income Market Types of Securities Traded Accessibility of the Market Levels of Risk Expected Returns Goals of Investors Strategies Used by Market Participants Example marketsarrow_forwardOf the following investment vehicles, which is the best and which is the worst? Choose from common stocks, mutual funds, ETFs, REITs. Explain why.arrow_forward
- The Stock Analysis report will detail the portfolio that will be built for the client. This information is based on the recommendations made in the Investor Profile report. This report may include research and analysis of the following: 1. Review the stock market and provide a general overview of performance. Some questions you can provide answers to are: How is the market currently performing? What events are causing noticeable fluctuations? Are there any threats of crashes? 2. What industries will you invest in and why are you going to invest in them? You can also mention newsworthy events, industry performance, historical returns, and performance etc. that support your decision to invest . Perform stock analysis for Apple inc.arrow_forwardWhich of the following is true with respect to the big picture of portfolio theory? Group of answer choices When one invests in portfolios, they are guaranteed to get positive returns There is a better relation between risk and return for individual stocks than for portfolios There is a better relation between risk and return for portfolios than for individual assets Harry Markowitz's contribution with respect to portfolio theory can be summarized as "put all your eggs in one basket"arrow_forwardthe possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Artemis Inc. Babish & Co. Cornell Industries Danforth Motors What is the expected return on Andre's stock portfolio? O 11.10 % 14.99% 8.32% Percentage of Portfolio Expected Return 20% 30% 35% 15% 16.65% 8.00% 14.00% 13.00% 5.00% Standard Deviation 27.00% 31.00% 34.00% 36.00% Suppose each stock in Andre's portfolio has a correlation coefficient of 0.4 (p 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 32%, the portfolio's standard deviation…arrow_forward
- What is an optimal risky portfolio? Discuss the process of creating an optimal portfolio of risky assets. If you are trying to create an optimal portfolio, how do you select the risky assets to include in the portfolio?arrow_forwardHow might the incentive fee of a hedge fund affect the manager’s proclivity to take on high-risk assets in the portfolio?arrow_forwardAs a fund manager in Bull & Bear Securities, you are given the following information regarding your portfolio. Rate of Return if State Occurs {:[" State of "],[" Economy "]:} {:[" Probability of "],[" State of Economy "]:} Stock A Stock B Stock C Boom .72 .06 .11 .17 Bust .28 .19 -.04 .23 Based on the above information, compute the following: i) The expected return in boom economy for all the three stocks. ii) The expected return in bust economy for all the three stocks. iii) The expected return for the portfolio that invest 30 percent each in A and B and 40 percent in C. iv) The standardarrow_forward
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