Questions from General Investment

Q: A pension fund manager is considering three mutual funds. The first

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The ch...

Q: What are the advantages of the index model compared to the Markowitz

What are the advantages of the index model compared to the Markowitz procedure for obtaining an efficiently diversified portfolio? What are its disadvantages?

Q: Suppose that the index model for stocks A and B is estimated

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: For portfolio P with investment proportions of .60 in A and .40 in B, rework Problems 9, 10...

Q: A stock recently has been estimated to have a beta of 1

A stock recently has been estimated to have a beta of 1.24: a. What will a beta book compute as the “adjusted beta” of this stock? b. Suppose that you estimate the following regression describing the...

Q: A portfolio manager summarizes the input from the macro and micro forecasters

A portfolio manager summarizes the input from the macro and micro forecasters in the following table: a. Calculate expected excess returns, alpha values, and residual variances for these stocks. b. C...

Q: Recalculate Problem 17 for a portfolio manager who is not allowed to

Recalculate Problem 17 for a portfolio manager who is not allowed to short sell securities. a. What is the cost of the restriction in terms of Sharpe’s measure? b. What is the utilit...

Q: You manage an equity fund with an expected risk premium of 10

You manage an equity fund with an expected risk premium of 10% and an expected standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in yo...

Q: Suppose that on the basis of the analyst’s past record, you

Suppose that on the basis of the analyst’s past record, you estimate that the relationship between forecast and actual alpha is: Actual abnormal return = .3 × Analyst’s forecast of alpha a. Redo Probl...

Q: Suppose that the alpha forecasts in row 39 of Spreadsheet 8.

Suppose that the alpha forecasts in row 39 of Spreadsheet 8.1 are doubled. All the other data remain the same. a. Use the Summary of Optimization Procedure to estimate back-of-the-envelope calculation...

Q: How does the magnitude of firm-specific risk affect the extent

How does the magnitude of firm-specific risk affect the extent to which an active investor will be willing to depart from an indexed portfolio?