Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 20, Problem 2PS
A fund manages a
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A fund manages a $4.8 billion equity portfolio with a beta of 0.60. If the S&P contract
multiplier is $50 and the index is currently at 3,000, how many contracts should the
fund sell to make its overall position market neutral?
Number of contracts
. a. A mutual fund with beta of .8 has an expected rate of return of 14%. If rf = 5%, and you expect the rate of return on the market portfolio to be 15%, should you invest in this fund? What is the fund’s alpha?b. What passive portfolio comprised of a market-index portfolio and a money market account would have the same beta as the fund? Show that the difference between the expected rate of return on this passive portfolio and that of the fund equals the alpha from part (a).
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Chapter 20 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 20 - Prob. 1PSCh. 20 - A fund manages a 3.6 billion equity portfolio with...Ch. 20 - Prob. 3PSCh. 20 - Prob. 4PSCh. 20 - Which of the following would be the most...Ch. 20 - Prob. 6PSCh. 20 - Which of the following hedge fund types is most...Ch. 20 - Prob. 8PSCh. 20 - Prob. 9PSCh. 20 - Is statistical arbitrage true arbitrage? Explain....
Ch. 20 - A hedge fund with 1 billion of assets charges a...Ch. 20 - Prob. 12PSCh. 20 - Prob. 13PSCh. 20 - Prob. 14PSCh. 20 - Prob. 15PSCh. 20 - 16. The following is part of the computer output...Ch. 20 - Return to the previous problem. LO202 a. Suppose...Ch. 20 - Prob. 18CCh. 20 - Prob. 19CCh. 20 - Prob. 1WMCh. 20 - Prob. 2WMCh. 20 - Prob. 3WM
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- Consider the following information and then calculate the required rate of return for the Global Equity Fund, which includes 4 stocks in the portfolio. The market's required rate of return is 11.25%, the risk-free rate is 4.65%, and the Fund's assets are as follows: Stock Investment Beta A $175,000 1.35 B $365,000 0.85 C $545,000 –0.45 D $1,145,000 2.08arrow_forward7 You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. Year 2018 2019 2020 2021 2022 Fund -21.8% 25.1 Sharpe ratio Treynor ratio 14.1 6.4 -2.22 Market -41.5% 21.2 14.5 8.8 -5.2 Risk-Free 3% 4 2 4 3 What are the Sharpe and Treynor ratios for the fund? Note: Do not round intermediate calculations. Round your answers to 4 decimal places.arrow_forwardIf a fund has a return of 10% and a beta of 1.5, and if the risk-free rate is 5%, and market return rate is 8%, calculate Jensen's Alpha O a. 0.5 O b. 1.4 O c. 0.65 O d. 0.42arrow_forward
- You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. Year 2018 2019 2020 2021 2022 Fund -14.85% 25.1 12.9 7.2 -1.5 Market -29.5% 20.0 10.9 8.0 -3.2 Risk-Free 3% 5 2 5 What are the Sharpe and Treynor ratios for the fund? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Answer is complete but not entirely correct. Sharpe ratio Treynor ratio 0.1613 2.8377arrow_forwardCAPM As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Fund T Fund U Forecasted Return CAPM Beta 1.20 0.80 9.0% 10.0 a. If the risk-free rate is 3.9 percent and the expected market risk premium (E(RM)-RFR) is 6.1 percent, calculate the required return for each mutual fund according to the CAPM. b. Using the estimated required of returns from part (a) along with your return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?arrow_forwardYou have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.87. Year 2018 2019 2020 2021 2022 Fund -14.85% 25,10 12.90 7.20 -1.50 Jensen's alpha Information ratio Market -29.50% 20.00 10.90 8.00 -3.20 Risk-Free 3% Calculate Jensen's alpha for the fund, as well as its information ratio. Note: Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places. 5 2 5 3 %arrow_forward
- You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.91. Year 2018 2019 2020 2021 2022 Fund -20.60% 25.10 13.90 7.60 -2.10 Market -39.50% 21.00 13.90 8.80 -5.20 Risk-Free 1% 3 2 4 2 Calculate Jensen's alpha for the fund, as well as its information ratio. Note: Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.arrow_forwardBaghibenarrow_forwardSuppose you manage a $5 million fund that consists of four stocks with the following investments: Stock Investment Beta A $250,000 1.50 B 750,000 -0.50 C 1,250,000 1.25 D 2,750,000 0.75 If the market's required rate of return is 9% 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. %arrow_forward
- Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 13.0%, the risk-free rate is 6.00 %, and the Fund's assets are as follows: Stock A B BUD C D 10.58% 11.25% 12.37% 13.18% 13.77% Investment $ 200,000 300,000 500,000 $1,000,000 Beta 2.00 -0.60 1.20 1.00arrow_forwardConsider the following information and then calculate the required rate of return for the Universal Investment Fund, which holds 4 stocks. The market's required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows: Stock Investment Beta A $200,000 1.5 B $300,000 -0.5 C $500,000 1.25 D $1,000,000 0.75arrow_forwardYou have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97. Year 2018 2019 2020 2021 2022 Fund -15.20% 25.10 13.00 7.40 -1.56 Market -30.50% 20.10 Jensen's alpha Information ratio 11.20 8.00 -3.20 Risk-Free 3% 4 Calculate Jensen's alpha for the fund, as well as its information ratio. Note: Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places. Answer is not complete. 3.77 %arrow_forward
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