Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 4, Problem 28PS
You expect a tax-free municipal bond portfolio to provide a
a. What fraction of portfolio income is given up to fees?
b. If the management fees for an equity fund also are 0.6%, but, you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees?
c. Why might management fees be a bigger factor in your investment decision for bond fluids than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts lend to focus on the fixed-income market?
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You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Management fees of the fund are .6%. What fraction of portfolio income is given up to fees? If the management fees for an equity fund also are .6%, but you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees? Why might management fees be a bigger factor in your investment decision for bond funds than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts tend to focus on the fixed-income market?
3) Suppose the value function v(.) of an investment fund manager is defined by:
v(x) = x for gains and v(x) = -2|x| for losses.
Yesterday, the fund manager had a good day: their investments earned $15m.
Today, the fund manager had a bad day: their investments lost $10m.
a) What is the fund manager's value if they integrate the investment returns for the two days?
b) What is the fund manager's value if they evaluate the investment returns for the two days
separately?
c) Discuss how an investor's information evaluation horizon (i.e., frequent vs infrequent) might
affect their investment strategy.
Solve the problems listed below. Show your solution and box the final answer. (bond or yellow paper)
1. A fund is set up to charge a load. Its net asset value is P16.50 and its offer price is P17.30.
A. How much is the commission of the load?
B. What percentage of the offer price does the commission represent?
C. What percentage of the net asset value does the commission represent?
D. Assume the fund increased in value by .30 the first month after you purchased 100 shares. What is the total gain or loss? Compare the total current value with the total purchase amount.
E. By what percentage would the net asset value of the shares have to increase for you to break even?
2. Under peso-cost averaging, an investor will purchase P6,000 worth of stock each year for three years. The stock price is P40 in year 1, P30 in year 2 and P48 in year 3.
A. What is the share purchased in every year?
B. Compute the average price per share.
C. Compute the average cost per share.
3. Under peso-cost…
Chapter 4 Solutions
Essentials Of Investments
Ch. 4 - Prob. 1PSCh. 4 - Prob. 2PSCh. 4 - Prob. 3PSCh. 4 - Prob. 4PSCh. 4 - Prob. 5PSCh. 4 - Prob. 6PSCh. 4 - Prob. 7PSCh. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Prob. 10PS
Ch. 4 - An open-end fund has a net asset value of $10.70...Ch. 4 - Prob. 12PSCh. 4 - The composition of the Fingroup Fund portfolio is...Ch. 4 - Reconsider the Fingroup Fund in the previous...Ch. 4 - Prob. 15PSCh. 4 - Prob. 16PSCh. 4 - Prob. 17PSCh. 4 - Loaded-Up Fund charges a 12b-1 fee of 1% and...Ch. 4 - City Street Fund has a portfolio of $450 million...Ch. 4 - Prob. 20PSCh. 4 - Prob. 21PSCh. 4 - Prob. 22PSCh. 4 - Prob. 23PSCh. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Prob. 27PSCh. 4 - You expect a tax-free municipal bond portfolio to...Ch. 4 - Prob. 29PSCh. 4 - Prob. 30CCh. 4 - Prob. 1WMCh. 4 - Prob. 2WMCh. 4 - Prob. 3WM
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- 3. Consider an individual who has the possibility of investing an amount t in period 1 in a fund that gives an amount s in period 2. (a) If the interest rate r is positive, what would be the smallest s so that it is optimal for the consumer to accept that investment? (b) If t = 100 and s = 115, what is the highest interest rate at which the individual is willing to invest in that fund?arrow_forwardConsider the following risk-return characteristics for funds A and B: Expected return Risk Fund A (Equity) 12% 20% Fund B (Debt) 9% 16% The correlation coefficient between the returns of fund A and fund B is 0.4. 1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write 3 if your answer is undetermined. 2.1 What is the weight of fund A in the minimum variance portfolio? 2.4 What is the risk of the minimum variance portfolio? 2.2 What is the weight of Fund B in the minimum variance portfolio? 2.3 What is the expected return of the minimum variance portfolio?arrow_forwardA mutual fund that aggressively seeks capital growth: # O A. will have an MER that is higher than a global fund. OB. will have an MER that is approximately the same as a T-bill fund. OC. will have an MER that reflects the increased costs of research. OD. will have an MR similar to that of a fixed-income fund.arrow_forward
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- A project should be accepted if its internal rate of return exceeds: O the rate of return on a government bond. the rate the company pays on borrowed funds. O zero. O the company's required rate of return.arrow_forwardSuppose that a mutual fund agent approaches you and promote a fund which allows you to withdraw money from your Employment Provident Fund (EPF) to invest. From the analysis of the agent, the fund expected to pay up to 11% return, and you know that EPF paid an average 6% return and treasury’s return fixed at 2.75%. Based on the discussion in this chapter and in your opinion, are you going to take the investment? Justify your answerarrow_forward1. You are evaluating investing in a private equity fund and estimate that it will yield the following cash flows: (see table) a. What is the expected IRR of the fund? You will need to use your financial calculator (or excel) to solve this problem. b. On average, private equity funds that invest in similar businesses earn a rate of return of 26%. Should vou invest in this fund (Hint: no calculations are needed)arrow_forward
- Assume that as an investment manager at Oman investment fund; you hold a large bond portfolio of Omani government bonds (long term) and T-bills (short-terms). The interest rates are currently falling due to Covid-19. a. How your bond portfolio would be affected by falling interest rates? b. How your t-bills portfolio would be affected by falling interest rates? c. Which portfolio is more sensitivearrow_forward21) A pension fund would like to add an investment to its portfolio. Investment A has a Sharpe Ratio of 1.3 and investment B has a Sharpe Ratio of 1.5. Will investment B be a better choice?arrow_forwardHello How can i calculate the annual rate of return? Is there a formula that i can use? or can i solve this in excel?arrow_forward
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