FA 3 Set Exercises1. What are some comparative advantages of investing in the following?a) Unit investment trusts.b) Open-end mutual funds.c) Individual stocks and bonds that you choose for yourself.2. You are considering two alternative two-year investments: You can invest in arisky asset with a positive risk premium and returns in each of the two years thatwill be identically distributed and uncorrelated, or you can invest in the risky assetfor only one year and then invest the proceeds in a risk-free asset. Which of thefollowing statements about the first investment alternative (compared with thesecond) are true?a) Its two-year risk premium is the same as the second alternative.b) The standard deviation of its two-year return is the same.c) Its annualized standard deviation is lower.d) Its Sharpe ratio is higher.e) It is relatively more attractive to investors who have lower degrees of risk aversion.3.Tabulate and draw the investment opportunity set of the two risky funds. Useinvestment proportions for the stock fund of 0% to 100% in increments of 20%.

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FA 3 Set Exercises 1. What are some comparative advantages of investing in the following? a) Unit investment trusts. b) Open-end mutual funds. c) Individual stocks and bonds that you choose for yourself.

FA 3 Set Exercises 1. What are some comparative advantages of investing in the following? a) Unit investment trusts. b) Open-end mutual funds. c) Individual stocks and bonds that you choose for yourself.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 6EP

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Question

FA 3 Set Exercises
1. What are some comparative advantages of investing in the following?
a) Unit investment trusts.
b) Open-end mutual funds.
c) Individual stocks and bonds that you choose for yourself.
2. You are considering two alternative two-year investments: You can invest in a
risky asset with a positive risk premium and returns in each of the two years that
will be identically distributed and uncorrelated, or you can invest in the risky asset
for only one year and then invest the proceeds in a risk-free asset. Which of the
following statements about the first investment alternative (compared with the
second) are true?
a) Its two-year risk premium is the same as the second alternative.
b) The standard deviation of its two-year return is the same.
c) Its annualized standard deviation is lower.
d) Its Sharpe ratio is higher.
e) It is relatively more attractive to investors who have lower degrees of risk aversion.
3.
Tabulate and draw the investment opportunity set of the two risky funds. Use
investment proportions for the stock fund of 0% to 100% in increments of 20%.

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