3. You are the manager of a medium-sized hedge fund, and the recent fluctuations in thecapital markets have attracted your attention. In particular, the prices of stocks and bondshave now dropped to what you consider to be unprecedentedly attractive levels. Althoughyou expect the prices of these investments to rise in the near future, your hedge fund iscurrently cash-constrained due to an unforeseen redemption wave; "fire-selling" the bestholdings in your portfolio is not a practical way to generate investable funds. Further, thenext round of incoming cash flows from new investor subscriptions and from the existinginvestments are not expected to occur for approximately three months.a. Briefly explain the details of two investment strategies that employ derivative instru-ments that would allow you to take advantage of the anticipated market rally.b. What are the benefits and potential risk factors for undertaking these derivative strat-egies in lieu of direct cash-oriented investments?

Answer: Given that the bond and share prices are at all time low, we anticipate a rally in the…

Answered: 3. You are the manager of a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following observations would provide evidence against the strong form of efficient market theory? I) Mutual fund managers do not on average make superior returns. II) In any year approximately 50% of all pension funds outperform the market. III) Managers who trade in their own firm's stocks make superior returns I only II only I and II only III only
“The strong form of the efficient-market hypothesis is nonsense. Look at the T. Rowe Price Global Technology Fund, which is the best performing mutual fund of the past decade, returning 20.5% annually over the past 10 years, according to Morningstar.” Do you agree with this statement? Discuss your point of view.
please answer these two fast correctly 29.Which of the following is a false statement regarding open-end mutual funds? They redeem shares at their net asset value. They offer investors a guaranteed rate of return. They offer investors a well-diversified portfolio. They offer low-cost diversification. 30. Semitool Corp. has an expected excess return of 6% for next year. However, for every unexpected 1% change in the market, Semitool's return responds by a factor of 1.2. Suppose it turns out that the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated, pushing up the stock price by another 1%. Based on this information, what was Semitool's actual excess return? 8.5% 9.25% 8.8% 7%
Suppose you are looking for some investment opportunities in the stock market. 1. You observe that Google or Alphabet Inc. (goog) is currently traded at $1133 per share. However, it has never paid any dividends to its shareholders. Your friend concluded that the stock price of google is totally overvalued by applying the dividend discount model. Do you agree? Explain your answer. 2. A portfolio manager recommends you his mutual fund. He claims that the mutual fund he manages obtained a 10%, 6% and 8% return in the past three years, while the market return was only 8%, 4.8%, and 6.4% in the past three years. Based on this information, do you believe this manager is good at picking stocks? If not, what other information do you need?
Which of the following hypothetical phenomena would be either consistent with or a violation of the efficient market hypothesis? Explain briefly.a. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.b. Money managers who outperform the market (on a risk-adjusted basis) in one year are likely to outperform the market in the following year.c. Stock prices tend to be predictably more volatile in January than in other months.d. Stock prices of companies that announce increased earnings in January tend to outperform the market in February.
Which one of the following would provide evidence against the semistrong form of the efficient market theory?a. About 50% of pension funds outperform the market in any year.b. All investors have learned to exploit management signals about the future performance of the firm.c. Trend analysis is worthless in determining stock prices.d. Low P/E stocks tend to have positive abnormal returns over the long run.
-Give an example of a hidden capital gain. -List the reasonns why mutual funds redeem shares -Is a negative Sharpe ratio good or bad? EXPLAIN -If a mutual fund earned 12 % when the market earned only 9 % does this prove the manager outperform the market? -if diversification is desired, would you seek investments with high correlation?
During periods when investors suddenly become fearful that stocks are overvalued, they dump their stocks, and the stock market experiences a major decline. During these periods, interest rates also tend to decline. Use the loanable funds framework discussed to explain how the massive selling of stocks may lead to lower interest rates. No more than three sentences.
Which of the following hypothetical phenomena would be either consistent with or a violation of the efficient market hypothesis? a. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year. Consistent Inconsistent b. Money managers who outperform the market (on a risk-adjusted basis) in one year are likely to outperform the market in the following year. Consistent Inconsistent c. Stock prices tend to be predictably more volatile in January than in other months. Consistent Inconsistent d. Stock prices of companies that announce increased earnings in January tend to outperform the market in February. Consistent Inconsistent
Decide whether the following statement makes sense (or is clearly true) or does not make sense (or is clearly false). Explain your reasoning. I bought a fund advertised on the web that says it uses a secret investment strategy to get an annual return twice that of stocks, with no risk at all.Choose the correct answer below. A.The statement does make sense because this secret investing strategy must be a new financial planning strategy that does not incorporate the three traditional investment considerations: liquidity, risk, and return. B.The statement does not make sense because investing in stocks is low-risk to get high returns, thus getting higher returns than stocks with this secret strategy must mean the fund advertised on the web is low-risk, not no risk. C.The statement does make sense because the strategy indicates that the return is a predictable amount, thus the fund advertised on the web is a no-risk investment. D.The statement does not make sense because…
Which of the following defines a hedge fund the most? 1. A collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. 2. A negotiable security that represents securities of a foreign company and allows that company's shares to trade in the U.S. financial markets. 3. A diversified portfolio that typically does not limit the number of shares it can offer, and they are bought and sold on demand. 4. A type of investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio construction and risk-management techniques to improve performance.
During periods when investors become fearful that stocks are overvalued, they try to get rid of their stocks, and the stock market experienced a major decline. During these periods, interest rates also tend to decline. Use the loanable funds to explain how a massive sale of stocks leads to lower interest rates.

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