Question

You complete an analysis of the fund DQXQ, and you expect an excess return (return - risk free) of 14.0%. Your expectation of the excess return of the market is 15.5%, and the beta of DQXQ is 0.85. You want to create an arbitrage portfolio to take advantage of the mispricing with the following characteristics (Wp, Wmkt, Wrf, alpha).

Group of answer choices:

100% ; -85% ; borrow ; 15% ; 0.83%

-100% ; 85% ; lend ; 15% ; 0.83%

-100% ; 85% ; lend ; 15% ; 0.83%

-100% ; 85% ; lend ; 15% ; 1.50%

100% ; -85% ; borrow ; 15% ; 1.50%

Answer #1

Given

Beta = 0.85

Excess market return = 15.5%

Excess stock return = 14%

According to CAPM, the stock return must be 15*0.85 = 13.175%

Therefore the stock is giving more return than expected.

Hence, we must have a 100% long position onDQXQ stock and 85% short position on Market.

The alpha from this position will be

alpha = Excess stock return - 0.85* excess market return

= 14 - 15.5*0.85

= 14 - 13.175

= 0.825 = 0.83%

Since, we have 100% long position and 85% short positon. Thus we need to borrow rest 15% to balance our postion

Hence,

Answer is Option A

100% ; -85% ; borrow ; 15% ; 0.83%

You complete an analysis of the fund DQXQ, and you expect an
excess return (return - risk free) of 14.0%. Your expectation of
the excess return of the market is 13.3%, and the beta of DQXQ is
0.85. You want to create an arbitrage portfolio to take advantage
of the mispricing with the following characteristics (Wp, Wmkt,
Wrf, alpha).
Group of answer choices
100% ; -85% ; borrow ; 15% ; 2.70%
-100% ; 85% ; lend ; 15% ;...

Testing a portfolio for alpha involves regressing the portfolio
excess return on the market excess return. What does the p-value
from the regression output tell you?
Group of answer choices
the total amount of alpha
the total amount of beta
the probability that the alpha is zero
whether the CAPM is useful or not

You consider investing in two mutual funds with the following
parameters:
Fund 1
Fund 2
Beta
0.8
1.2
Standard Deviation
20%
32%
The funds are valued in a market
where investors can borrow and lend, using T-bills, at the risk
free rate of 5% and require a risk premium above this risk free
rate of 8% for holding the market portfolio.
Suppose you can borrow and lend at the risk free rate of
interest. Which of the two funds do...

Assume that you are the portfolio manager of the BG Fund, a $3.5
million hedge fund that contains the following stocks. The market
risk premium is 6.00% and the risk-free rate is 5.5%. What rate of
return should investors expect (and require) on this fund?
Stock Amount($) Beta
A 1,100,000 1.15
B 700,000 0.60
C 850,000 1.50
D 850,000 0.85
Total $3,500,000
10.56%
10.83%
11.81%
12.15%
12.31%

The manager of GT-KiwiSaver Fund expects the fund to earn a rate
of return of 12% this year. The beta (β) of the fund’s portfolio is
0.8. The rate of return available on Treasury Bills (risk-free
assets) is 5% p.a. and you expect the rate of return on an NZSX50
Index Fund (the market portfolio) to be 15% p.a.
a. Demonstrate whether you should invest in GT-KiwiSaver Fund or
not.
b. Show how you can create a portfolio, with the...

8. The manager of GT-KiwiSaver Fund expects the fund to earn a
rate of return of 12% this year. The beta (β) of the fund's
portfolio is 0.8. The rate of return available on Treasury Bills
(risk-free assets) is 5% p.a. and you expect the rate of return on
an NZSX50 Index Fund (the market portfolio) to be 15% p.a. a.
Demonstrate whether you should invest in GT-KiwiSaver Fund or not.
b. Show how you can create a portfolio, with...

You are trying to make decisions on which mutual fund you
should invest in based on the past performance of two fund
managers. Manger A averaged a 17% return with a portfolio beta of
1.5, and manager B averaged a 15% return with a portfolio beta of
1.2. If the T-bill rate was 5% and the market return during the
period was 13%, which fund manager was the better stock picker?
A.
Advisor A was better
because he generated...

You are an Investment Analyst at a fund management company,
Waikato Investment Management Ltd. You are asked to analyze the
characteristics of two stocks, Wanaka Holdings Ltd. and Pukaki
Consolidated Ltd. Below is a table showing some of the data you
have gathered:
Stock
Beta
Standard Deviation
Covariance with Market
Wanaka
50%
0.015
Pukaki
1.5
30%
In addition, you also know that the expected return on the NZX50
(the market index) is 15% and the risk-free rate of interest
presently...

PORTFOLIO REQUIRED RETURN
Suppose you are the money manager of a $4.41 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 440,000
1.50
B
680,000
(0.50)
C
1,340,000
1.25
D
1,950,000
0.75
If the market's required rate of return is 10% and the risk-free
rate is 5%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
places.

PORTFOLIO REQUIRED RETURN
Suppose you are the money manager of a $5.05 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 420,000
1.50
B
680,000
(0.50)
C
1,300,000
1.25
D
2,650,000
0.75
If the market's required rate of return is 9% and the risk-free
rate is 6%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
places.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 10 minutes ago

asked 26 minutes ago

asked 36 minutes ago

asked 41 minutes ago

asked 48 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago