GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
11th Edition
ISBN: 9781260201550
Author: Bodie
Publisher: MCG
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Chapter 4, Problem 25PS
Summary Introduction
To determine:
Whether conclusion warranted, considering that the investor observed the performance associated with the 350 managers of portfolio for 5 years and ranking them on the basis of return provided by the investment during the year. It has been identified by the investor that there exist a total of 11 funds the return from which is able to exist in top half of the entire sample.
Introduction:
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You are given the following information for two funds A and B, relating to their performance
over the last five years.
A
B
Market
Risk-free Investment
Cumulative Total
Return
Covariance of
Standard deviation
Return
over 5 Years
of Return
with Market
76.20%
0.22
0.044
101.10%
0.32
0.075
92.50%
0.25
40.30%
Calculate the Treynor, Sharpe and Jensen performance measures for Funds A and B. What do
they tell you about the performance of the funds?
You are an analyst for a large public pension fund and you have been assigned the
task of evaluating two different external portfolio managers (Yellen and Zagami)
who (actively) manage two funds which are considering. Your associates have
assembled the following historical average return, standard deviation, and CAPM
beta estimates for these two fund managers over the past five years. In addition,
you have estimated that the risk premium for the market portfolio is 5.12% and the
risk-free rate is currently 4.14%.
What is Ms. Yellen's average "alpha" for the period.
Report your answer in percentage format rounded to three decimal places.
(For example.1234 should be entered as "12.3").
Fund Manager Actual Avg. Return Standard Deviation
Ms. Yellen
11%
Mr. Zagami
8.24%
Answer:
11.07
8.75%
Beta
1.18
0.9
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?
Chapter 4 Solutions
GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
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