Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 18.1, Problem 2EQ
Which fund would you choose if you were considering investing the entire risky portion of your portfolios? What if you were considering adding a small position in one of these films to a portfolio currently invested in the market index?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
You want to allocate your money between the risk free asset (0.015), a fixed income fund ( E(B)=0.079, Volatility(B)=0.11), and a diversified stock fund ( E(S)=0.116, Volatility(S)=0.18). The correlation between the two risky funds is 0.57. When creating the optimal risky portfolio, how much weight in decimals should you invest in the diversified stock fund?
Consider an investment scenario where you will be choosing a portfolio of three stocks from acollection of five semiconductor stocks, four transportation stocks, two pharmaceutical stocksand two retail stocks. If the three stocks are chosen at random, what is the probability that theportfolio will be financially diverse? The investment portfolio will be considered financiallydiverse if it has at least two different industries represented in the portfolio
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 return
Chapter 18 Solutions
Essentials Of Investments
Ch. 18.1 - Prob. 1EQCh. 18.1 - Which fund would you choose if you were...Ch. 18.6 - Prob. 1EQCh. 18.6 - What would happen to the contribution of security...Ch. 18 - Prob. 1PSCh. 18 - Is it possible for a positive alpha to be...Ch. 18 - Prob. 3PSCh. 18 - Prob. 5PSCh. 18 - 6. stock price and dividend history are as...Ch. 18 - Prob. 7PS
Ch. 18 - Based on current dividend yields and expected...Ch. 18 - Consider the two (excess return) index~m0del...Ch. 18 - Prob. 10PSCh. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Conventional wisdom says that one should measure a...Ch. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Bill Smith is evaluating the performance of four...Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 21PSCh. 18 - Prob. 22PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - What is the Sharpe performance measure for...Ch. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CPCh. 18 - Prob. 12CPCh. 18 - Prob. 13CPCh. 18 - Prob. 14CPCh. 18 - Prob. 1WMCh. 18 - Prob. 2WMCh. 18 - Prob. 3WMCh. 18 - Prob. 4WMCh. 18 - Prob. 5WMCh. 18 - Prob. 7WM
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- As an active fund manager, you have obtained information on three individual stocks, the market index, and T-bills as follows: Asset Expected Return (%) Total Standard Deviation (%) Beta Stock 1 20.0 80.00 1.8 Stock 2 16.0 60.00 1.4 Stock 3 6.0 50.00 0.8 Market Index 10.0 40.00 1.0 T-bills 4.0 0.00 0.0 You decide to use the above information to form an optimal active portfolio, consisting of the three individual stocks. Determine the corresponding weights for the three stocks in the optimal active portfolio. Show your work.arrow_forwardWhich of the following hedge fund types is most likely to have a return that is closest to risk-free?a. A market-neutral hedge fund.b. An event-driven hedge fund.c. A long/short hedge fund.arrow_forwardAs a fund manager in Bull & Bear Securities, you are given the following information regarding your portfolio. Rate of Return if State Occurs {:[" State of "],[" Economy "]:} {:[" Probability of "],[" State of Economy "]:} Stock A Stock B Stock C Boom .72 .06 .11 .17 Bust .28 .19 -.04 .23 Based on the above information, compute the following: i) The expected return in boom economy for all the three stocks. ii) The expected return in bust economy for all the three stocks. iii) The expected return for the portfolio that invest 30 percent each in A and B and 40 percent in C. iv) The standardarrow_forward
- a. Using the data provided in problem 3, determine the return and risk for a portfolio made up of the following three stocks if you want to distribute your investment as follows: 20% in ADRE; 65% in MSFT and 15% in GOOG.b. How would the portfolio be affected if you distributed your investment in the following way: 30% in ADRE; 25% on MSFT and 45% on GOOG?c. Which of the two portfolios would a risk seeking investor prefer and why?arrow_forwardYou are evaluating two investment alternatives. One is a passive market portfolio with an expected return of 10% and a standard deviation of 16%. The other is a fund that is actively managed by your broker. This fund has an expected return of 15% and a standard deviation of 20%. The risk-free rate is currently 7%. What is the maximum fee (expense ratio) your broker could charge and still leave you as well off as if you had invested in the passive market fund? (Assume that the fee would be a percentage of the investment in the broker's fund, and would be deducted at the end of the year.) Group of answer choices 5.00% 4.25% 3.00% 6.33% None of the above.arrow_forwardAfter learning the course, you divide your portfolio into three equal parts (i. e.. equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 1.32. What is the beta of your overall portfolio?arrow_forward
- Yessy Enterprise Ltd has prepared the following information regarding two investments under consideration. Based on the risk/return profile, which investment should be accepted? Investment A Investment B Probability Return Probability Return 0.15 8% 0.20 1% 0.35 11% 0.30 8% 0.35 19% 0.30 15% 0.15 -2% 0.20 9% Will you change your recommendation (above) if Yessy Enterprise currently holds a portfolio with only five stocks? Why?arrow_forwardElsie is an investor considering investing in an actively managed equity fund. The Fund has a return of 8%; the risk-free rate was 2% and the market portfolio returned 8%. The Fund had a target Beta of 1.40, but was actually 1.30. The fund had a standard deviation of 20%, and the market had a standard deviation of 12%. a. Calculate - Sharpe ratio b. Calculate - Treynor Ratio c. Discuss whether Elsie should consider using the Sharpe ratio or the Treynor ratio to discuss portfolio performance d. Define the Sortino ratio and explain its advantage E)Using Fama Decomposition, calculate: - Return from Investor's risk - Return from Manager's risk - Return from Diversification - Return from Net Selectivityarrow_forwardAfter learning the course, you divide your portfolio into three equal parts (i.e., equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 0.8. What is the beta of your overall portfolio?arrow_forward
- As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U}: Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 a. If the risk-free rate is 3.9 percent and the expected market risk premium (£(RM) -RFR} is 6.1 percent, calculate the expected return for each mutual fund according to the CAPM. b. Using the estimated expected returns from part (a) along with your own return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?arrow_forwardYour client decides to invest $1.4 million in Blandystock and $0.6 million in Gourmange stock. Whatare the weights for this portfolio? What is theportfolio’s beta? What is the required return forthis portfolio?arrow_forwardYou are working on creating a portfolio that mimics a fully diversified market index.Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add anadditional risky stock C and a risk-free bond to your portfolio. How much would you invest instock C and risk-free bond?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Portfolio Management; Author: DevTechFinance;https://www.youtube.com/watch?v=Qmw15cG2Mv4;License: Standard YouTube License, CC-BY