“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.
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“The strong form of the
Do you agree with this statement? Discuss your point of view.
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- “The strong form of the efficient-market hypothesis is nonsense. Look at the T. RowePrice 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.”Investments are made to earn a return, but making investments requires the individual to bear risk. A higher return by itself does not necessarily indicate superior performance. It may simply be the result of taking more risk. Given this context, answer the following two-part questions. A mutual fund generates a 10.8 percent return. During the same period, the market rose by 8.8 percent. If the risk-free rate was 2 percent and the fund had a beta of 1.2 : Did the fund outperform the market? Explain your response.In relation to the efficient markets hypothesis, consider the following observations: Mutual fund managers do not on average make superior returns. In any year approximately 50 percent of all pension funds outperform the market. It is possible to make superior returns by buying or selling stocks after the announcement of an abnormal rise in earnings. Managers who trade in their own stocks make superior returns. Which of the following statements is true? I does not provide evidence against semi-strongform efficiency, but II does provide evidence against semi-strong form efficiency. II does not provide evidence against semi-strongform efficiency, but I does provide evidence against semi-strong form efficiency. Both I and II provide evidence against the semi-strongform of market efficiency III provides evidence against semi-strong form efficiency and IV provides evidence against strongform efficiency. III and IV provide evidence against semi-strong form efficiency.
- You are given the following information concerning several mutual funds: Fund Return in Excess of the Treasury Bill Rate Beta A 12.4% 1.14 B 13.2% 1.22 C 11.4% 0.90 D 9.8% 0.76 E 12.6% 0.95 During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) a. Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b. The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose,…If you desire to forecast performance of a mutual fund for next year, the best forecast will be given by the a. geometric average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. both geometric average return and arithmetic average return You buy and hold a S&P 500 index fund. You always reinvest your dividends earned on the fund. Which method provides the best measure of the actual average historical performance of the investments you have chosen? a. both geometric average return and arithmetic average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. geometric average returnSuppose that Morningstar reports that a mutual fund has earned an alpha of 2.0% per year on average over the last five years. Is this a violation of market efficiency?
- You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .97. Year Fund Market Risk-Free 2015 −18.20 % −35.50 % 2 % 2016 25.10 20.60 5 2017 13.50 12.70 2 2018 6.80 8.40 6 2019 −1.86 −4.20 3 Calculate Jensen’s alpha for the fund, as well as its information ratio. (Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.)A local mutual fund says it has expertise in identifying stocks that are undervalued because they are under researched or unpopular. To prove its point, the fund produces evidence that it returns over the past four years was 3% above the return on the market index. a) What does efficient market hypothesis (EMH) say about undervalued stock? b) Does the fund’s evidence contradict the EMH?Consider a no - load mutual fund with $ 500 million in assets , 50 million in debt , and 12 million shares at the start of the year , and $ 600 million in assets , 40 million in debt , and 16 million shares at the end of the year . During the year investors have received income distributions of $ 0.50 per share , and capital gains distributions of $ 0.40 per share . Assuming that the fund carries no debt , and that the total expense ratio is 0.90 % , what is the rate of return on the fund ?
- In a recent 5-year period, mutual fund manager Diana Sauros produced the following percentage rates of return for the Mesozoic Fund. Rates of return on the market index are given for comparison. 1 2 3 4 5 Fund -1.4 23.2 41.1 10.1 0.5 Market index -0.6 18.0 30.6 11.4 -0.4 a. Calculate (a) the average return on both the Fund and the index, and (b) the standard deviation of the returns on each. (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Did Ms. Sauros do better or worse than the market index on these measures?A mutual fund manager has a $20 million portfolio with a beta of 0.75. The risk-free rate is 3.75%, and the market risk premium is 7.0%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 12%. What should be the average beta of the new stocks added to the portfolio? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.A good stock-based mutual fund should earn at least 10% per year over a long period of time. Consider the case of Barney and Lynn, who were overheard gloating (for all to hear) about how well they had done with their mutual fund investment. “We turned a $25,000 investment of money in 1982 into $100,000 in 2007.” Solve, a. What return (interest rate) did they really earn on their investment? Should they have been bragging about how investment-savvy they were?