(c) You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the S&P Midcap 400, and the net asset value of the fund is $175 million. Should you be long or short in the Midcap 400 futures contracts? Assuming the Midcap 400 Index is at 1,450 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy.

(c) You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the S&P Midcap 400, and the net asset value of the fund is $175 million. Should you be long or short in the Midcap 400 futures contracts? Assuming the Midcap 400 Index is at 1,450 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that you are the portfolio manager of the Forestie Fund, a $3 million hedge fund thatcontains the following stocks. The required rate of return on the market is 11.00% and therisk-free rate is 5.00%. Compute what is the portfolio’s required return should investors expecton this fund? (Please state your answer in 2 decimal points)Stock Amount BetaA $1,075,000 1.20B $675,000 0.50C $750,000 1.40D $500,000 0.75
You create a portfolio consisting of $23000 invested in a mutual fund with beta of 1.3, $25000 invested in Treasury Securities (assume risk-free), and $12000 invested in an index fund tracking the market. According to surveys, the expected market risk premium is 6.6%, risk free rate is 1.3%. What is the expected return of this portfolio according to CAPM? Answer in percent, rounded to one decimal place.
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 f the risk-free rate (RFR) is 3.9% and the expected market risk premium (i.e., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ.
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 2.00%. What rate of return should investors expect (and require) on this fund? Do not round your intermediate calculations. Stock A B C D 11.16% 10.82% 9.93% 9.37% 9.71% Amount $1,075,000 $675,000 $750,000 $500,000 $3,000,000 Beta 1.20 0.50 1.40 0.75
Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 2.00%. What rate of return should investors expect (and require) on this fund? Do not round your intermediate calculations. Stock Amount BetaA $915,000 1.20B $675,000 0.50C $810,000 1.40D $600,000 0.75 $3,000,000
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 If the risk-free rate (RFR) is 3.9% and the expected market risk premium (ie., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ. 3.b. Decide which fund is overvalued, undervalued or properly valued and explain why?
A portfolio manager is considering investing in two mutual funds and the risk free asset (T-Bills). The data for these securities is give by: ER. σ Stock Fund (S) 18% 23% Bond Fund(B) 6% 13% T-Bill 5% 0% The correlation between the two funds is -0.1 One mutual fund’s portfolio, M, is reached by investing 42% in stocks and 58% in bonds. Calculate the expected return, standard deviation and Sharpe Ratio of this and draw the Capital Allocation Line (CAL) that is associated with the portfolio M you calculated in (a). In addition, sketch the minimum variance frontier in the same graph (no further calculations needed). Indicate on your graph which part of the frontier is the efficient set.
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% b) Calculate each fund mgr's average "alpha" (i.e. actual return minus expected return) over the 5 year holding period. Show graphically where these alpha statics would plot on the security market line (SML) Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8
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): Fund T Fund U Forecasted Return 9.0% 10.0 CAPM Beta 1.20 0.80 a) If the risk-free rate is 3.9 % and the expected market risk premium is 6.1%, 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, explain 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. Are Funds T and U overvalued, undervalued, or properly valued?
A fund manager has a portfolio worth $95 million with a beta of 1.16. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current level of the S&P 500 index is 2,675, the risk-free rate is 2% per annum, and the dividend yield on the index is 4% per annum. The current 3-month S&P 500 index futures price is 2,660, and one contract is on 250 times the index. (a) What position should the fund manager take to eliminate all risk exposure to the market over the next two months? (B' = 0) How many three-month S&P 500 futures contracts should the fund manager buy or sell now? (Rounding to the nearest whole number.) (b) Calculate the effect of your strategy on the fund manager's returns if the level of the S&P 500 index in two months is 2,585. Assume that the 3-month S&P 500 index futures price is 2,570 in two months. What would be the expected value of the fund manager's hedged…
A portrollo consists of assets with the following expected returns: Technology stocks Pharmaceutical stocks Utility stocks Savings account a. What is the expected return on the portfolio if the investor spends an equal amount on each asset? Round your answer to two decimal places. % 26% 16 9 4 b. What is the expected return on the portfolio if the investor puts 53 percent of available funds in technology stocks, 15 percent in pharmaceutical stocks, 14 percent in utility stocks, and 18 percent in the savings account? Round your answer to two decimal places. %
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .96. Year Fund 2015 -14.92% Market -28.50% Risk-Free 2% 2016 25.10 19.90 2017 12.80 10.60 2018 7.00 2019 -1.44 7.60 -2.20 4252 Calculate Jensen's alpha for the fund, as well as its information ratio. (Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.) Jensen's alpha Information ratio %

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