Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 24, Problem 10PS
Summary Introduction

To describe: Market timing and security selection ability of managers.

Introduction: Market timing is represented by the slope of the curve whereas security ability is represented by the scatter diagram when market condition is neutral.

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1. Three bonds (A, B, and C) have the same maturity, issuer, seniority, coupon rate, and maturity. However, Bond A is convertible, Bond B is callable, and Bond C is a standard non-callable non-puttable bond. A convertible bond gives the investor the right but not the obligation to convert the bond to shares of the issuer’s stock for a fixed price. A callable bond gives the issuer the right but not the obligation to buy the bond back from the investor for a fixed price. Rank the value of the three bonds from highest to lowest:  Group of answer choices -C, A, B -C, B, A -B, C, A -A, B, C -A, C, B 2. A famous anomaly in stock returns is the Post-earnings announcement drift (the PEAD anomaly). The PEAD occurs after a company announces its earnings. The share prices of firms whose announced earnings exceed those predicted by analysts rise at the announcement and continue to rise on average for up to 3 months following the announcement. Conversely, the share prices of firms whose announced…
Please answer the following MCQS with explanations. I have also attached the formulas list, if needed.  1. You are assessing the average performance of two mutual fund managers with the Fama-French 3-factor model. The fund managers and the Fama-French factors had the following performance over this periodof time:                                 Manager 1          Manager 2           Rm − rf           smb          hmlAvg. (total) Ret        27%                    13%                      8%                  2%            6%βmkt                        2                          1                           1                      0               0s                               1                          -0.5                       0                     1                0h                               1                          0.5                        0                     0                1 The risk-free rate is 2%. Based on the Fama French 3-factor model, which manager is better?…
Please answer the following MCQS with explanations. I have also attached the formulas list, if needed.  1. If your mutual fund manager generates returns that earn a statistically significant CAPM alpha, is it necessarily true that they are really “beating the stock market”? Group of answer choices: -No, you will only find a significant CAPM $\alpha$ when you do not have a long data sample -Yes, assuming you have enough data to generate reliable estimates of alpha and beta -Yes, CAPM alpha means the asset is earning return that is not explained by exposure to the market -No, it depends on the beta of the stock -No; a missing risk factor could explain the manager's performance 2. You are assessing the average performance of two mutual fund managers with the Fama-French 3-factor model. The fund managers and the Fama-French factors had the following performance over this periodof time:                                 Manager 1          Manager 2           Rm − rf           smb…
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