Investments Exam #2: Chapters: 4 and 5

An open-end fund has a net asset value of $10.70 per share. It is sold with a front-end load of 6%. What is the offering price?

$11.38 Offering price= NAV / (1-load) NAV= 10.70 Load= 6% 10.70 / (1-0.06) = 11.38

If you place an order to buy or sell a share of a mutual fund during the trading day, the order will be executed at _____. a. the NAV calculated at the market close at 4 pm New York time b. the real time NAV c. the NAV delayed 15 minutes d. the NAV calculated at the opening of the next day's trading

A: the NAV calculated at the market close at 4 pm New York time

A contingent deferred sales charge is commonly called a ____. a. front-end load b. back-end load c. 12b-1 charge d. top-end sales commission

B: back end load

Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ____________. a. direct operating expenses b. back-end loads c. 12b-1 charges d. front-end loads

C: 12b-1 charges

__________ funds stand ready to redeem or issue shares at their net asset value. a. Closed-end b. Index c. Open-end d. Hedge

C: open-end

The ratio of trading activity of a portfolio to the assets of the portfolio is called the ____________. a. reinvestment ratio b. trading rate c. portfolio turnover d. tax yield

C: portfolio turnover

Advantages of ETFs over mutual funds include all but which one of the following? a. ETFs trade continuously, so investors can trade throughout the day. b. ETFs can be sold short or purchased on margin, unlike fund shares. c. ETF providers do not have to sell holdings to fund redemptions. d. ETF values can diverge from NAV.

D

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV? a. 9.26% premium b. 8.47% premium c. 9.26% discount d. 8.47% discount

D: 8.47% discount NAV= market value assets - liabilities / shares outstanding NAV= 300 - 5 / 9 NAV = $32.78 premium/discount =(market price - NAV) / NAV negative #= discount positive# = premium premium/discount = (30 - 32.78) / 32.78 = -.0847 = 8.47 % discount

The wildwood fund sells Class A shares with a front end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.

Fund B is the better choice dollar of investment = initial x ( 1 - front/back end load %) x ( 1 + annual rate of return - fees %: 12b-1 fee %) ^ # of years *you can use whatever number you want for initial $) initial: $500 Fund A: 500 x ( 1 - 0.05) x ( 1 + 0.10 - 0 ) ^ 4 500 x (0.95) = 475 475 x ( 1. 1 ) ^4 Fund A = $695.45 Fund B: 500 x ( 1- 0 ) x ( 1 + 0.10 - 0.01) ^ 4 500 x (1.09) ^ 4 Fund B = $705.79 Fund B has a larger investment dollar, so it's the better fund.

The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding. a. What is the NAV of the fund? b. If the fund sells for $36 per share, what is its premium or discount as a percent of NAV?

a: $39.40 NAV= market value assets - liabilities / shares outstanding NAV= 200 - 3 / 5 NAV = 39.4 b: 8.63% discount premium/discount = (market price - NAV) / NAV premium= positive # & discount = negative # premium/discount = (36- 39.4) / (39.4) = - 8.63 = 8.63% discount

You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a Treasury bill with a rate of return of 5%. How much money should be invested in the risky asset to form a portfolio with an expected return of 11%? a: $6,000 b: $4,000 c: $7,000 d: $3,000

a: $6,000

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 11%, you should invest __________ of your complete portfolio in Treasury bills. 19% 25% 36% 50%

a: 19%

In the mean standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called the _________. capital allocation line indifference curve investor's utility line security market line

a: capital allocation line

You invest in a mutual fund that charges a 7% front-end load, 1% total annual fees, and a 2% back-end load, which decreases .5% per year. How much will you pay in fees on a $10,400 investment that does not grow if you cash out after 3 years of no gain?

$1,062.2 dollar of investment = initial x ( 1 - front/back end load %) x ( 1 + annual rate of return - fees %: 12b-1 fee %) ^ # of years initial: 10,400 rate of return : 0 back-end load: 2% then it decreases by .5 each year back-end load for year 3= .5%= 0.005 front end load: 7% dollar of investment= 10,400 x (1-0.07) x (1-0.005) x (1+ 0 - 0.01) ^ 3 = 10,400 x (1 - 0.07) = 9672 9672 x (1- 0.0.005) = 9623.64 (1+ 0 - 0.01) = 0.99 9623.64 x (0.99) ^3 = 9,337.80 10,400 - 9,337.80 = $1,062.2

The composition of the Fingroup Fund portfolio is as follows: StockSharesPrice: A 200,000 shares $35 B 300,000 shares $40 C 400,000 shares $20 D 600,000 shares $25 The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $30,000. There are 4 million shares outstanding. What is the net asset value of the fund?

$10.49 NAV= market value of assets - liabilities / shares outstanding (35 x 200,000 + 40 x 300,000 + 20 x 400,000 + 25 x 600,000) = Total market value TMV = 42,000,000 liabilities/fees= 30,000 42,000,000 - 30,000 = 4,000,000 shares outstanding= 4,000,000 NAV= (42,000,000 - 30,000) / (4,000,000) NAV= 10.49

If the offering price of an open-end fund is $12.30 per share and the fund is sold with a front-end load of 5%, what is its net asset value?

$11.69 offering price= NAV / (1-load) 12.30=NAV / (1-0.05) 12.30=NAV / (0.95) 12.30 x 0.95 = NAV NAV= 11.69

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $440 million. It has liabilities of $6 million and 10 million shares outstanding. If the fund sells for $41 a share, what is its premium or discount as a percent of NAV?

- 5.53% discount premium/discount close end fund = (market price - NAV) / (NAV) NAV = market value assets - liabilities / shares outstanding NAV = $440 million - $6 million / 10 million shares NAV = $43.4 premium/discount = (41 - 43.4) / (43.4) discount = - 5.53% positive # = premium negative # = discount

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of .75%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of .25%. Assume the rate of return on both funds' portfolios (before any fees) is 6% per year. a. How much will an investment of $100 in each fund grow to after 1 year? b. How much will an investment of $100 in each fund grow to after 3 years? c. How much will an investment of $100 in each fund grow to after 10 years?

1 year: Load up fund: $104.25 economy fund: $103.64 3 year: Load up fund: $113.30 economy fund: $115.90 10 year: Load up fund: $151.62 economy fund: $171.41 dollar investment= initial x (1- front or back end) x (1+ for - expense or 12b1 fees) ^ # of years load: = 100 x (1-0) x (1 + 0.06 - 1% + .75%) ^number of year year 1 = 100 x (1-0) x (1 + 0.06 - .0175) ^ 1 = $104.25 year 3 = 100 x (1-0) x (1 + 0.06 - .0175) ^ 3 year 10 = 100 x (1-0) x (1 + 0.06 - .0175) ^10 economy fund = 100 x (1- 0.02) x ( 1 + 0.06 - .25%) ^ # years year 1= 100 x (1- 0.02) x ( 1 + 0.06 - .0025) ^ 1 = $103.64 year 3: 100 x (1- 0.02) x ( 1 + 0.06 - .0025) ^ 3 year 10: 100 x (1- 0.02) x ( 1 + 0.06 - .0025) ^ 10

You manage a equity fund with an expected risk premium of 10.6% and a SD of 20%. The rate on treasure bills is 6%. Your client chooses to invest $50,000 of her portfolio in your equity fund and 50,000 in a Tbill money market fund. What is the expected ROR and SD of return on your client's portfolio?

Expected rate of return = .113% SD = .1%

Consider a no-load mutual fund with $440 million in assets and 20 million shares at the start of the year, and $490 million in assets and 21 million shares at the end of the year. During the year investors have received income distributions of $3 per share, and capital gains distributions of $0.30 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

20% Rate of return= (NAV 1 -NAV 0 + income and cap gain distribution) / (NAV 0) NAV = market value assets - liabilities / shares outstanding NAV 0= 440 m - 0 / 20 m NAV 0 = $22 NAV 1 = 490 m - 490 m x 0.01 % / 21 m NAV 1= $23.1 income = $3 capital gain distribution = $0.30 $ 3 + $0.30 = $3.3 rate of return = (23.1 - 22 + 3.3) / ( 22) rate of return = 4.4 / 22 ROR = 20%

A mutual fund has total assets outstanding of $69 million. During the year the fund bought $17.25 million worth of stocks and sold $20 million worth of stocks . What is the fund's turnover rate?

25% Turnover rate = (dollar amount added or replaced / portfolio analysis) *amount added or replaced: use whichever is less* $17.25 million vs $20 million 17.25 = less TR= $17.25 million / $69 million TR = 25 %

The composition of the Fingroup Fund portfolio is as follows: StockShares and Price : A: 200,000 shares $35 B: 300,000 shares $40 C: 400,000 shares $20 D: 600,000 shares $25 If during the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $50 per share and 200,000 shares of stock F at $25 per share. What is the portfolio turnover rate?

35.71% Turnover rate = (dollar amount add or replaced / portfolio analysis) *dollar amount add or replaced= whichever is less* portfolio analysis= (200,000 x 35 + 300,000 x 40 + 400,000 x 20 + 600,000 x 25) portfolio analysis = 42,000,000 stock d: 600,000 x 25 = $15 million stock ef: 200,000 x 50 + 200,000 x 25= $15 million *whichever is less+ turnover rate = $15,000,000 / $42,000,000 turnover rate = 35.71

Corporate Fund started the year with a net asset value of $12.50. By year-end, its NAV equaled $12.10. The fund paid year-end distributions of income and capital gains of $1.50. What was the rate of return to an investor in the fund?

8.80% ROR= NAV1 - NAV 0 + income & cap gain / NAV0 NAV 0 = $12.50 NAV 1 = $12.10 income & captain = $1.50 ROR= 12.10 - 12.50 + 1.50 / 12.50 ROR= 8.80

Suppose your expectations regarding the stock market are as follows: Boom: probability: 0.3 HPR: 44% Normal Growth: probability: 0.4 HPR: 14% Recession: probability: 0.3 HPR: -16% -expected return -variance - standard deviation Use above equations to compute the mean and standard deviation of the HPR on stocks:

Mean: 14.00% Standard Deviation: 23.24% How to find it: Mean: boom: 0.3 x 44% = 13.2 ng: 0.4 x 14% = 5.6 r: 0.3 x -16% = -4.8 (13.2 + 5.6 + -4.8) = 14% SD: variance= ( 0.3 x (0.44 - 0.14) ^ 2) + (0.4 x (0.14 - 0.14)^2) + ( 0.3 x (-0.16 - 0.14) ^2 ) variance = 0.054 standard deviation = square root of 0.054 = 23.24

Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 39%. The Tbill rate is 6%. stock a: 23% stock b: 32% stock c: 45% a client prefers to invest in your portfolio a proportion (y) that maximizes thee expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 30%. a) what is the investment proportion(Y)? b) what is the expected rate of return on overall portfolio?

a) 76.92% b) 10.62%

Assume that you manage a risky portfolio with an expected rate of return of 16% and a standard deviation of 32%. The T-bill rate is 5%. Your client chooses to invest 80% of a portfolio in your fund and 20% in a T-Bill money market fund. a) What is the expected return and Standard deviation of your client's portfolio? b) What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio?

a) expected ror= 13.8% standard deviation = 25.6% b) reward to vol ratio risky= 34.38% overall = 34.38%

Assume that you manage a risky portfolio with an expected rate of return of 12% and a SD of 29%. T-Bill rate is 4% Your risky portfolio includes the following investments in the given proportions: A: 20% B: 30% C: 50% Your client invests in your risky portfolio a proportion (y) of his total investment budget with the remainder in a bill money market fund so that his overall portfolio will have an expected rate of return of 11%. a) what is the proportion y? b) what are your clients investment proportions in your three stocks and bill fund? c) What is the SD of the rate of return on your client's portfolio?

a) proportion Y = 87.50% b) stock a= 17.50% stock b= 26.25% stock c= 43.75% tbill- 12.50% c) SD= 24.50

A closed-end fund starts the year with a net asset value of $12. By year-end, NAV equals $12.10. At the beginning of the year, the fund is selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.50. a.What is the rate of return to an investor in the fund during the year? b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year?

a) rate of return: 4.19% NAV 0: $12 ---> Selling at a 2% premium NAV 0= $12 x (1 + 2%) = 12 x 1.02% = $12.24 NAV 1: 12.10 --> selling at a 7% discount NAV1: 12.10 x (1- 7%) = 12.10 x 0.93% = $11.253 NAV1 - NAV0 = 11.253 - 12.24 = -0.987 Price fell: -0.987 income and cap gain= $1.50 ROR= (price change in NAV1-NAV0) + income cap / change in NAV 0 ROR = ( - 0.987 + 1.50 ) / (12.24) ROR = 4.19 b) rate of return = 13.33% income cap gain = $1.50 NAV 0: $12 NAV 1: $12.10 ROR= (NAV1-NAV0) + income cap gain / NAV 0 $12.10 - $12 = 0.10 ROR = 0.10 + 1.50 / 12 ROR = 13.33

XYZ stock price and dividend history are as follows: YearBeginning-of-Year PriceDividend Paid at Year-End 2010 $100 $4 2011 $110 $4 2012 $90 $4 2013 $95 $4 An investor buys three shares of XYZ at the beginning of 2010, buys another two shares at the beginning of 2011, sells one share at the beginning of 2012, and sells all four remaining shares at the beginning of 2013. a. What are the arithmetic and geometric average time-weighted rates of return for the investor? b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2010, to January 1, 2013. b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.)

a. arithmetic mean: 3.15% geometric mean: 2.33% How to find it: step 1) holding period return Holding period return= end - beginning + paid / beginn 2010-2011: (110 - 100 +4) / 100 = 14% 2011-2012: (90 - 110 + 4) / 110 = -14.55 2012-2013: (95 - 90 + 4) / 90 = 10% step 2) arithmetic mean: arithmetic mean= holding period percents / # of holding periods 14% + -4.55% + 10% / 3 = 3.15% geometric mean: ((1 + r1) x (1+ r2) x (1 + r3)) ^ 1/3 - 1 (1+ .14) x ( 1 - .1455) x (1 + .10) = (1.14) x (0.8545) x (1 .1) = (1.0715) ^ 1/3 -1 = 1.0233 -1 = 2.33% b-1. Cash flows: 1/1/2010: $ -300 1/1/2011: $ -208 1/1/2012: $ 110 1/1/2013: $ 396 b-2. Rate of return: -0.1661% How to find: cash flows: positive #= shares sold negative # = shares bought = # of shares bought/sold x #shares bought/sold + divid paid(if more than one dividend then multiply them together) CF0= -100 x 3 = -300 CF1 = -110 x 2 + 3 x 4 = -208 CF2 = 90 x 1 + 5 x 4 = 110 CF3 = 95 x 4 + 4 x 4 = 396 How to find dollar weight ROR /Internal ROR go to IROR in calculator (-300, {-208,110,396}) = -.166%

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? Suppose your risky portfolio includes the following investments in the given proportions: Stock A: 27% Stock B: 33% Stock C: 40% b. What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) c. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio?

a. Expected return: 14.0 % per year S standard deviation: 18.9 % per year b. Security Investment Proportions T-Bills 30.0 % Stock A 18.9 % Stock B 23.1 % Stock C 28.0 % c. Reward-to-Volatility Ratios Risky portfolio: 0.3704 % Client's overall portfolio: 0.3704 %

The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually. a.If you plan to sell the fund after four years, are Class A or Class B shares the better choice for you? b.What if you plan to sell after 15 years?

a. Class B Dollar investment = initial x ( 1 - back or front end ) x ( 1 + ror - expense or 12b1 fees) ^ # of years *Hypothetically: say the initial investment is $100 for both funds.* Class A Funds: $100 x ( 1 - 0.06 ) x (1+ 0.10 - 0 ) ^ 4 = $137.63 Class B Funds: $100 x (1- 0.01 ) x ( 1 + 0.10 - .005) ^ 4 = $142.33 * Since Class B has a a bigger number, it's better* b. Class A Class A Funds: $100 x ( 1 - 0.06 ) x (1+ 0.10 - 0 ) ^ 15 = $392.66 Class B Funds: $100 x (1- 0.01 ) x ( 1 + 0.10 - .005) ^ 15 = $386.23

Excess return % year average Std Dev Sharpe Ratio 5% vaR 1926-2010 7.97 20.70 .39 -36.86 a. Using the Table 5.4 as your guide, what is your estimate of the expected annual HPR on the S&P 500 stock portfolio if the current risk-free interest rate is 5%?

a. expected annual HPR: 12.97% HPR: ( average excess return + risk free rate) expected annual HPR: (0.0797 + 0.05) = 12.97

Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion is to use the formula: A = E(rm) - rf / o^2m *A = 4.* a. What would be a reasonable guess for the expected market risk premium? b. What value of A is consistent with a risk premium of 9%? c. What will happen to the risk premium if investors become more risk tolerant?

a. market risk premium: 16% b. Consistent value of A: 2.25 c. increased risk tolerance means decreased risk aversion (A), which results in a(n) *decrease* in risk premiums. a) find market risk premium A = rm - rf / 0^2 m if A = 4 and SD is 20% risk aversion = risk premium / (SD) ^2 4 = x / 20% ^2 = 4 x (0.2)^2 = 16% b) if risk premium is 9% what is risk aversion? A = 0.09 / (0.20)^2 A = 2.25%

Annual percentage rates can be converted to effective annual rates by means of the following formula: a. [1 + (APR/n)]n - 1 b. (APR)(n) c. (APR/n) d. (periodic rate)(n)

a: [1 + (APR/n)]n - 1

The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Boom: Dividend: $2.00 Stock price: $50 Normal Growth: Dividend: $1.00 Stock Price: $43 Recession: Dividend: $0.50 Stock price: $34 a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%.

a: expected return: 8.75% Standard deviation: 17.88% - How to get expected return: step 1) find holding period return boom: ($50 - $40 + 2.00) / $40 = 30% NG: (43-40+1.00) /40 = 10% R: (34 -40 +0.50) / 40 = -13.75 step 2) expected return: (1/3 x 30) + (1/3 x 10) + (1/3 x -13.75) = 8.75% -How to find standard deviation: step 1) find variance variance = (1/3 x (30-8.75)^2) + (1/3 x (10-8.75)^2) + (1/3 x (-13.75-8.75)^2) = 319.7916667 step 2) standard deviation square root of 319.7916667 = 17.88% b: expected return: 6.38% standard deviation: 8.94% How to Find: expected return: if 8.75 is expected return in part a & 4% in T-Bills and 1/2 in buss adventure and 1/2 in T-bills expected return= (.5) x (.0875) + (.5) x (.04) = 6.38 standard deviation: if standard deviation is 17.88% in part a SD= (.5) x (.1788) = 8.94%

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%. a: What is the investment proportion, y? b: What is the expected rate of return on the overall portfolio?

a: investment proportion y = 74.07% b: Rate of return = 14.41%

You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. A portfolio that has an expected value in 1 year of $1,100 could be formed if you _________. a: place 40% of your money in the risky portfolio and the rest in the risk-free asset b: place 55% of your money in the risky portfolio and the rest in the risk-free asset c: place 60% of your money in the risky portfolio and the rest in the risk-free asset d: place 75% of your money in the risky portfolio and the rest in the risk-free asset

a: place 40% of your money in the risky portfolio and the rest in the risk-free asset

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your risky portfolio includes the following investments in the given proportions: Stock A: 27 % Stock B: 33 % Stock C: 40 % Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 15%. a. What is the proportion y? b. What are your client's investment proportions in your three stocks and the T-bill fund? c. What is the standard deviation of the rate of return on your client's portfolio?

a: proportion y = 0.8% b: SecurityInvestment Proportions T-Bills 20.0 % Stock A 21.6 % Stock B 26.4 % Stock C 32.0 % c: standard deviation = 21.6%

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 13% with a standard deviation of 25%. a: What is the slope of the CML?

a: slope of the CML = 0.24

The market risk premium is defined as __________. a: the difference between the return on an index fund and the return on Treasury bills b: the difference between the return on a small-firm mutual fund and the return on the Standard & Poor's 500 Index c: the difference between the return on the risky asset with the lowest returns and the return on Treasury bills d: the difference between the return on the highest-yielding asset and the return on the lowest-yielding asset

a: the difference between the return on an index fund and the return on Treasury bills

Treasury bills are paying a 4% rate of return. A risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ______. 8.67% 9.84% 21.28% 14.68%

c: 21.28%

You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%. 100% 90% 45% 10%

c: 45%

The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is _________. 6% 8.75 % 10% 16.25%

d: 16.25%

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________. geometric average return arithmetic average return dollar-weighted return index return

dollar-weighted return

You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in your equity fund and $40,000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client's portfolio?

expected return = 12.0% standard deviation = 8.4%

The geometric average of -12%, 20%, and 25% is _________. a. 8.42% b. 11% c. 9.7% d. 18.88%

geometric average = 9.7%

Which one of the following measures time-weighted returns and allows for compounding? Geometric average return Arithmetic average return Dollar-weighted return Historical average return

geometric average return

You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in your equity fund and $40,000 in a T-bill money market fund. What is the reward-to-volatility ratio for the equity fund?

reward to volatility ratio = 0.71

You manage a equity fund with an expected risk premium of 11% and a SD of 24%. The rate on treasure bills is 6.2%. Your client chooses to invest $80,000 of her portfolio in your equity fund and 20,000 in a Tbill money market fund. What is the reward to volatility ratio for the equity fund?

reward to volatility= 45.83%

The complete portfolio refers to the investment in _________. the risk-free asset the risky portfolio the risk-free asset and the risky portfolio combined the risky portfolio and the index

the risk free asset and the risky portfolio combined