Greta, an elderly investor, has a degree of risk aversion of A = 5 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a SD of 19%. The hedge fund risk premium is estimated at 11% with a SD of 38%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim. If the correlation coefficient between annual portfolio returns is actually 0.3, what is the covariance between the returns? (Round your answer to 3 decimal places.) Annual covariance

Greta, an elderly investor, has a degree of risk aversion of A = 5 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a SD of 19%. The hedge fund risk premium is estimated at 11% with a SD of 38%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim. If the correlation coefficient between annual portfolio returns is actually 0.3, what is the covariance between the returns? (Round your answer to 3 decimal places.) Annual covariance

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 23IC

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Chapter 13Financial Planning Exercise 7Calculating approximate yield on mutual fund About a year ago, Elliot Cox bought some shares in the Axis Fund. He bought the fund at $24.50 a share, and it now trades at $26.00. Last year, the fund paid dividends of 40 cents a share and had capital gains distributions of $1.83 a share. Using the approximate yield formula, what rate of return did Elliot earn on his investment? Round the answer to two decimal places.% Repeat the calculation using a financial calculator. Round the answer to two decimal places.% Would he have made a 20% rate of return if the stock had risen to $30 a share?-Select-YesNo
Financial Planning Exercise 7Calculating approximate yield on mutual fund About a year ago, Elliot Cox bought some shares in the Axis Fund. He bought the fund at $25.00 a share, and it now trades at $26.00. Last year, the fund paid dividends of 60 cents a share and had capital gains distributions of $2.70 a share. Using the approximate yield formula, what rate of return did Elliot earn on his investment? Round the answer to two decimal places. % Repeat the calculation using a financial calculator. Round the answer to two decimal places. % Would he have made a 20% rate of return if the stock had risen to $30 a share?-Select-YesNo
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Question 3 Peter is a financial investor who actively buys and sells in the securities market. Peter has a portfolio which provided the returns of 13.7%, 10.5%, - 11.7%, 25.5% and 19.2% over the past five years, respectively. Required: Calculate the arithmetic and geometric average returns of Peter’s portfolio for this five-year period. Assume that the expected return of the share A in Peter’s portfolio is 15.4%. The market risk premium is 6.8%, Government Bond rate of return is 7.2%. Calculate the beta co-efficient of this share using the Capital Asset Pricing Model (CAPM). Peter has just set up another portfolio that comprises of two shares only: $3,500 Blue shares and $4,700 Red shares. Below is the data of this portfolio: Blue Red Expected return 17% 23% Standard Deviation of return 22% 39% Correlation of coefficient (p) - 0.45…