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Question - You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 15% with a standard deviation of 26%. You manage an active portfolio with expected return 19% and standard deviation 31%. The risk-free rate is 5%. Your client's degree of risk aversion is A = 2.8.
a. If he chose to invest in the passive portfolio, what proportion, y, would he select?
b. What is the fee (percentage of the investment in your fund, deducted at the end of the year) that you can charge to make the client indifferent between your fund and the passive strategy affected by his capital allocation decision (i.e., his choice of y)?
You are planning to make monthly deposits of $440 into a retirement account that pays 9 percent interest compounded monthly. If your first deposit will be made one month from
The expected rate of return on an investment with a beta of 2 is twice as high as the expected rate of return of the market portfolio.
1)The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased or sold. a) True b) False
TKK has $1 billion of capital invested in several projects that are expected to create a pretax operating profit of $170 million next year. TKK has an estimated tax cost of ca
You find a stock that had returns of 14 percent, -27 percent, 19 percent, 21 percent for four of the last five years . The average return of stock over this period was 9.5 p
Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the table below. If project A were actually a r
How much will income increase if the sales go up by 250 units? (You can ignore taxes for this problem.) How much will income increase if the store expects sales to go up by $2
In Problem 12, determine the monthly payment for a sixty-month truck loan with an annual percentage rate of 11% and an initial principal of $17,000. How much interest is paid
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