EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 24, Problem 8PS
a.
Summary Introduction
To analyze: The choice of inclusion of the portfolio in the holdings if the market-index portfolio is held.
Introduction:
Market-Index portfolio: When anyone has to calculate the cumulative value of various stocks, the choice of using market-index portfolio is ideal. Here the word index refers to the movement of the securities along with the one in the market for a long term.
b.
Summary Introduction
To analyze: The choice of portfolio if the investment is possible only in T-Bills.
Introduction:
Market-Index portfolio: When anyone has to calculate the cumulative value of various stocks, the choice of using market-index portfolio is ideal. Here the word index refers to the movement of the securities along with the one in the market for a long term.
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Based on current dividend yields and expected capital gains, the expected rates or return on portfolios A and B are 12% and 18%, respectively. The beta of A is 0.7 while that of B is 1.6. The T-bill rate is currently 4% while the expected rate of return of the S&P500 Index is 13%. The standard deviation of portfolio A is 14% annually, while that of B is 26%, and that of the index is 15%.
If you currently hold a market-index portfolio, would you chose to add either of these portfolios to your holdings?
Based on current dividend yields and expected capital gains, the expected rates of return on
portfolios A and B are 13% and 15% respectively. The beta of A is 0.8 while that of B is 1.3.
The T-bill rate is currently 7% while the expected rate of return of the S&P500 index is at 14%.
The standard deviation of portfolio A and B are 20% and 41%, and that of the index is 30%.
Compare the performance of the two portfolios relative to the market using the four
performance measures: Sharpe ratio, Treynor ratio, Jensen's Alpha and M?. Comment on
the calculated results.
а.
b.
Would you choose to add A or B to your holdings if you currently hold a market-index
portfolio? Justify your decision.
Which portfolio would you choose if instead you could invest only in Treasury bills and
one of these portfolios? Explain your answer.
с.
Could a portfolio show a higher Sharpe ratio but a lower M² measure at the same time?
Explain your answer.
с.
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is 0.8 while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 Index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31%, and that of the index is 20%.
a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.b. If instead you could invest only in bills and one of these portfolios, which would you choose?
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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