EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 24, Problem 5CP
Summary Introduction
To calculate: Sharpe performance measure of portfolio Q as per the given information.
Introduction: Sharpe ratio is defined as premium of the risk of portfolio with respect to the total risk of the portfolio. This ratio is also called reward to volatility ratio.
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(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently
4
percent, and the expected return for the market portfolio is
10
percent. What should be the expected rates of return for each investment?
Security
Beta
A
1.67
B
0.58
C
1.14
D
0.78
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Part 1
a. The expected rate of return for security A, which has a beta of
1.67,
is
enter your response here%.
(Round to two decimal places.)
Part 2
b. The expected…
You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return, standard deviation, and CAPM beta estimates for these two managers over the past five years:
PORTFOLIO ACTUAL AVG. RETURN STD. DEV. BETA
Manager Y 10.20% 12.00% 1.20
Manager Z 8.80% 9.90% 0.80
Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk free rate is currently 4.50%.
a) For both Manager Y and Manager Z, calculate the expected return using the CAPM. Express your answers to the nearest basis point (i.e. xx.xx%).
b) Calculate each fund…
You are an analyst for a large public pension fund and you have been assigned the task of
evaluating two different external portfolio managers (Y and Z). You consider the following
historical average return standard deviation, and CAPM beta estimates for these two
managers over the past five years: Additionally, your estimate for the risk premium for the
market portfolio is 5.00% and the risk-free rate is currently 4.50%
c) Explain whether you can conclude from the info. In Part b if: (1) either manager
outperformed the other on a risk-adjusted basis, and (2) either manager outperformed
market expectations in general
Portfolio
Actual Avg.Return
Standard Deviation
Beta
Manager Y
10.20%
12.00%
1.2
Manager Z
8.80%
9.90%
0.8
Chapter 24 Solutions
EBK INVESTMENTS
Ch. 24 - Prob. 1PSCh. 24 - Prob. 2PSCh. 24 - Prob. 3PSCh. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Prob. 6PSCh. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Prob. 10PS
Ch. 24 - Prob. 11PSCh. 24 - Prob. 12PSCh. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Prob. 15PSCh. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Prob. 18PSCh. 24 - Prob. 19PSCh. 24 - Prob. 20PSCh. 24 - Prob. 21PSCh. 24 - Prob. 22PSCh. 24 - Prob. 1CPCh. 24 - Prob. 2CPCh. 24 - Prob. 3CPCh. 24 - Prob. 4CPCh. 24 - Prob. 5CPCh. 24 - Prob. 6CPCh. 24 - Prob. 7CPCh. 24 - Prob. 8CPCh. 24 - Prob. 9CPCh. 24 - Prob. 10CPCh. 24 - Prob. 11CPCh. 24 - Prob. 12CPCh. 24 - Prob. 13CPCh. 24 - Prob. 14CP
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