CENGAGENOW FOR ANDERSON/SWEENEY/WILLIAM
13th Edition
ISBN: 9781337094399
Author: Cochran
Publisher: IACCENGAGE
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Textbook Question
Chapter 5, Problem 63SE
The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The
- a. Which of the funds would be considered the more risky? Why?
- b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
- c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor? Which would you recommend for a conservative investor? Why?
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The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn't change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money.
A) What percentage of years does this portfolio lose money, i.e. have a return less than 0%?
B) What is the cutoff for the highest 15% of annual returns with this portfolio?
Hi! I was working on the question below:
The Capital Asset Pricing Model (CAPM) is a financial model that assumes returns on a portfolio are normally distributed. Suppose a portfolio has an average annual return of 14.7% (i.e. an average gain of 14.7%) with a standard deviation of 33%. A return of 0% means the value of the portfolio doesn’t change, a negative return means that the portfolio loses money, and a positive return means that the portfolio gains money.
And question (a) looks like:
What percent of years does this portfolio lose money, i.e. have a return less than 0%?
I got a z-score of -0.4455, which corresponds to the p value of 0.3264 on the z-table; I don't understand why the correct answer should be 0.3280 as said by one of the solutions, and I cannot locate such a number on the z-table.
Thank you so much!
A survey of 137 investment managers in a poll revealed the following.
• 46% of managers classified themselves as bullish or very bullish on the stock market.
• The average expected return over the next 12 months for equities was 11.5%.
• 21% selected health care as the sector most likely to lead the market in the next 12 months.
• When asked to estimate how long it would take for technology and telecom stocks to resume sustainable growth, the managers' average response was 2.8 years.
(a)
Cite two descriptive statistics. (Select all that apply.)
O Of those investment managers surveyed, 46% were bullish or very bullish on the stock market.
V of those investment managers surveyed, 21% selected health care as the sector most likely to lead the market in the next 12 months.
V of those investment managers surveyed, 46% were bullish or very bullish on health care stocks over the next 2.8 years.
O Of those investment managers surveyed, 11.5% expect it would take 12 months for equities to…
Chapter 5 Solutions
CENGAGENOW FOR ANDERSON/SWEENEY/WILLIAM
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