Solutions to Lp Problems

For Investment B: (40 – 5)/ 30= 1.16 standard units= close to 88% to get the 40 million in

a. Calculate the expected return over the 4-year period for each of the three alternatives.

a) Assuming the opportunity interest rate is 6%, what is the present value of the second alternative?

Question 6. The mean return for the Vanguard Total Stock Index is 20.8 while the mean return for the Vanguard Balanced Index is 12.9 (with bonds). Based on this data you would conclude that bonds do not reduce the overall risk of an investment portfolio since the mean return was actually less when the porfolio has bonds in

1.00 point A fixed-income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 4.1% per year over the next 5 years. The portfolio is currently worth $10 million. One year later interest rates are at 5.1%. What is the portfolio value trigger point at this time that would require the manager to immunize the portfolio?

a. What would Mrs. Beach have to deposit if she were to use high quality corporate bonds an earned an average rate of return of 7%.

The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

b. What happens to the value of the option if you change it to 30%?

e. Suppose you created a two-stock portfolio by investing $50,000 in High Tech and $50,000 in Collections.

11) By how much would the profit contribution of product A has to increase before it will be profitable to produce A?

6. How would you allocate your wealth between the Treasury bill (risk-free rate) and the

5. With respect to b), what would be the effect of the bondization and equitization overlay program on the expected return of the absolute return portfolio? Which contracts would be the most

If today PSC want to hedge out its 100 value of stock portfolio, assuming beta=1.67, alpha is 3.35%: next year 's value
today initial value QQQ+10% QQQ-10%
long portfolio 100 100*(1+3.35%+1.67*10%)=120.05 100*(1+3.35%1.67*10)=86.65
short QQQ 167 167*(1-10%)=150.3 167*(1+10%)=183.7
total 267 270.35 270.35
return on hedged portfolio 3.35% 3.35%

the theoretical long portfolio value increase (portfolio return)=percentage increase in QQQ(QQQ return)*1.67+3.35%

mix of assets? What benchmark return might they expect for their current level of risk?

3. Due to best historical performance, 15% of the fund should be allocated to Value Fixed Income which is the third highest weight in the portfolio recommended above.