1) Suppose you invest your money evenly between two assets when you expect the correlation between their returns to be 0.2. While holding the two assets, however, they experience much higher correlation of 0.8. The difference in performance between what you expected and what you received is:
A. expected returns and standard deviation in returns are both higher
B. expected returns and standard deviation in returns are both lower
C. expected returns are higher, but standard deviation in returns is as expected
D. expected returns are as expected, but standard deviation in returns is higher
2) In the Wall Street Journal’s darts versus pros competition, the difference in returns generated by the two portfolios is explained by:
I. the darts were poorly thrown
II. the pros pick riskier stocks
III. other investors buying the stocks that the pros pick
IV. the pros are simply good at picking stocks
A. I and II
B. II only
C. IV only
D. II and III
3) __________ is a false statement regarding open-end mutual funds.
A. They offer investors a guaranteed rate of return
B. They offer investors a well diversified portfolio
C. They redeem shares at their net asset value
D. None of the above (A, B, and C are all true)
4) When we analyze the performance of an actively managed mutual fund we find that the fund generated a beta of 1.5 and an alpha of zero.
A. this result shows that the manager took relatively high risk when investing
B.this result shows that the manager did not add any value to performance with his/her decision-making
C. both (A) and (B) are true
D. none of the above
5) An attractive feature of Exchange Traded Funds (ETFs) is:
A. the price of the fund always matches the Net Asset Value
B. the investor has more control over tax implications of trading than with a mutual fund
C. ETFs only trade once a day, making it easier to keep track of their prices.
D. the fund is highly likely to produce a positive alpha
1)
D. expected returns are as expected, but standard deviation in
returns is higher
2)
D. II and III
3)
A. They offer investors a guaranteed rate of return
4)
C. both (A) and (B) are true
5)
A. the price of the fund always matches the Net Asset
Value
1) Suppose you invest your money evenly between two assets when you expect the correlation between their returns to be 0.2. While holding the two assets, however, they experience much higher correlati...
Investment companies and performance evaluation 1) Consider two different hedge funds with the following data related to performance: Hedge fund Alpha Beta Fund A 5% 1.6 Fund B 3% 0.8 Assuming that beta is consistent with the type of investing we expected in both cases, which fund performed better. A. Fund A, because it had the higher return B. Fund A, because it had the higher alpha C. Fund B, because its alpha is more impressive than Fund A when...
The standard deviation of Asset A returns is 36%, while the standard deviation of Asset M returns in 24%. The correlation between Asset A and Asset M returns is 0.4. (a) The average of Asset A and Asset M’s standard deviations is (36+24)/2 = 30%. Consider a portfolio, P, with 50% of funds in Asset A and 50% of funds in Asset M. Will the standard deviation of portfolio P’s returns be greater than, equal to, or less than 30%?...
ANSWER ALL. fiund is considering three mutual funds. The first is a stock fund, the second is money market fund yielding 1%. The probability a bond fund, and the third is a Exsciod Retcn 10% 5% 12% Stock Fund (S) Bond Fund (B) The correlation between the fund returns is 0.10 (ie. negative). 30. Calculate the wcights on socks (mu) and bonds (m) associated with the Minimum b, (w-74% , w -26%) d. (we-28%, w-72%) the expected return for a...
(4) I8 pts] Suppose you have some money to invest for simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the rest, 1 -w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields Rs after 1 year and that $1 invested in a bond fund yields Rh. Suppose further that Rs is random with with mean 0.08 (8%) and standard deviation 0.07, and that Rb is random...
Consider the following information for three stocks, Stocks A, B, and c. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.43 % 16 % 0.7 B 10.88 16 1.2 с 12.35 16 1.5 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the...
Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.86 % 16 % 0.7 B 11.26 16 1.2 С 13.18 16 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the...
Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated (That is, each of the correlation coefficients is between 0 and 1.) Stock Beta Standard Deviation 14 % A 0.8 Expected Return 9.02% 10.34 12.54 14 1.1 с 14 1.6 Fund P has one-third of its funds vested in each of the three stocks. The risk-free rates 5.5, and the market is in...
Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation 8.51 % 16 % 0.7 10.23 16 1.1 11.95 1.5 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That...
adjust rapidly to new information UI the efficient markets hypothesis J. future stock returns cannot be predicted from any information that is publicly aaese C. corporate insiders should have no better investment performance than allowed to trade freely D. A andB E. B and C other investors even if f-A nswer Questions (3 questions, 15 points, suggested time 15 minutes) wer each question in two to three sentences 5 points) When is a company's value of growth (PVGO) a negative...
Question 1: You are planning about putting some money in the stock market. There are two stocks in your mind: stock A and stock B. The economy can either go in recession or it will boom in the coming years. Being an optimistic investor, you believe the likelihood of observing an economic boom is two times as high as observing an economic depression. You also know the following about your two stocks: State of the Economy Probability RA RB Boom...