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The risk-free rate, S&P 500 index, and the average return, standard deviation, beta, and residual standard...

  1. The risk-free rate, S&P 500 index, and the average return, standard deviation, beta, and residual standard deviation for three funds are given.

Fund

Avg. Return

Std. Dev.

Beta

Residual Std. Dev.

A

B

C

S&P 500

Risk-free

18

25

22

12

4

15

30

20

10

0

1.3

1.4

1.2

1.0

0

1.5

2.5

3.0

1.Figure out the M2 measure for Fund A and B

2.Figure out the best fund based on the information ratio

Use the following table.

Your Portfolio

Benchmark Portfolio

Weight

Return

Weight

Return

Bonds

Stocks

20%

80%

6%

12%

40%

60%

4%

8%

3.Figure out your portfolio return and the total extra return.

4.Figure out the contribution of security/sector selection.

We have a bond with a coupon rate of 12% paid annually, 3 years to maturity, a par value of $1,000, and the yield to maturity of 1$0%.

5.Figure out the duration of the bond.

6.You believe that the Fed is about to increase interest rates by 60 basis points (0.6%). Figure out the percentage change in the bond price using the duration. (If you cannot figure out the duration above, please use a duration of 3.)

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Expert Solution

jeff jeffy answered 1 year ago
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