[SOLVED] What are some differences between hedge funds

What are some differences between hedge funds and mutual funds?

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> A portfolio’s expected return is 12%, its standard deviation is 20%, and the risk-free rate is 4%. Which of the following would make for the greatest increase in the portfolio’s Sharpe ratio? a. An increase of 1% in expected return. b. A decrease of 1%

> Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $110, the probability of a fire is .001, and in the event of a fire, the insured damages (the payout on the policy) will be $100,000. a. Make a table of the two pos

> Log in to Connect to find rate-of-return data over a 60-month period for Alphabet, the parent company of Google; the T-bill rate; and the S&P 500, which we will use as the market index portfolio. a. Use these data and Excel’s regression function to comp

> Here are rates of return for six months for Generic Risk, Inc. What is Genericâs beta? (Hint: Find the answer by plotting the scatter diagram.

> Log in to Connect and link to the material for Chapter 6, where you will find a spreadsheet containing monthly rates of return for Apple, the S&P 500, and T-bills over a recent five-year period. Set up a spreadsheet just like that of Example 6.3 and find

> The following figure shows plots of monthly rates of return and the stock market for two stocks. a. Which stock is riskier to an investor currently holding a diversified portfolio of common stock? b. Which stock is riskier to an undiversified investor w

> Investors expect the market rate of return this year to be 10%. The expected rate of return on a stock with a beta of 1.2 is currently 12%. If the market return this year turns out to be 8%, how would you revise your expectation of the rate of return on

> When adding a risky asset to a portfolio of many risky assets, which property of the asset has a greater influence on risk: its standard deviation or its covariance with the other assets? Explain.

> A project has a 0.7 chance of doubling your investment in a year and a 0.3 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment?

> Hennessy & Associates manages a $30 million equity portfolio for the multimanager Wilstead Pension Fund. Jason Jones, financial vice president of Wilstead, noted that Hennessy had rather consistently achieved the best record among the Winsted’s six equit

> What is the relationship of the portfolio standard deviation to the weighted average of the standard deviations of the component assets?

> Your assistant gives you the following diagram as the efficient frontier of the group of stocks you asked him to analyze. The diagram looks a bit odd, but your assistant insists he double-checked his analysis. Would you trust him? Is it possible to get s

> Assume expected returns and standard deviations for all securities, as well as the riskfree rate for lending and borrowing, are known. Will investors necessarily arrive at the same optimal risky portfolio? Explain.

> You can find a spreadsheet containing annual returns on stocks and Treasury bonds in Connect. Copy the data for the last 20 years into a new spreadsheet. Analyze the risk-return trade-off that would have characterized portfolios constructed from large st

> Suppose that many stocks are traded in the market and that it is possible to borrow at the risk free rate, rf. The characteristics of two of the stocks are as follows: Could the equilibrium rf be greater than 10%? (Hint: Can a particular stock portfolio

> Stocks offer an expected rate of return of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. a. In light of the apparent inferiority of gold to stocks with respect to both mean return and vo

> A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a Tbill money market fund that yields a sure rate of 5.5%. The probability distributions o

> In forming a portfolio of two risky assets, what must be true of the correlation coefficient between their returns if there are to be gains from diversification? Explain.

> Using the historical risk premiums as your guide, what is your estimate of the expected annual HPR on the market index stock portfolio if the current risk-free interest rate is 3%?

> a. Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in Equation 5.16 is A = 4, what would be a reasonable guess for the expected market risk premium? b. What value of A

> XYZ stock price and dividend history are as follows: An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beg

> The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: a. Calculate the expected holding-period return and standard deviation of the

> Suppose your expectations regarding the stock market are as follows: Use Equations 5.10â5.12 to compute the mean and standard deviation of the HPR on stocks

> You’ve just decided upon your capital allocation for the next year, when you realize that you’ve underestimated both the expected return and the standard deviation of your risky portfolio by a multiple of 1.05. Will you increase, decrease, or leave uncha

> When estimating a Sharpe ratio, would it make sense to use the average excess real return that accounts for inflation?

> Download the annual returns for the years 1927–2018 on the combined market index (of the NYSE/NASDAQ/AMEX markets) as well as the S&P 500 from Connect. For both indexes, calculate: a. Average return. b. Standard deviation of return. c. Skew of return.

> For each style portfolio, are real or nominal returns more volatile during each subperiod of Table 5.5?

> Convert the nominal returns on the broad market index to real rates. Reproduce the last column of Table 5.3 using real rates. Compare the results to those of Table 5.3. Are real or nominal returns more volatile in this sample period?

> Calculate the means and standard deviations of the four style indices in Table 5.4 (e.g., Big/Small, Value/Growth) for the same sub periods as in Table 5.5. a. Have Small/Growth stocks provided consistently better reward-to-volatility (Sharpe) ratios th

> The real interest rate approximately equals the nominal rate minus the inflation rate. Suppose the inflation rate increases from 3% to 5%. Does the Fisher equation imply that this increase will result in a fall in the real rate of interest? Explain.

> What is the reward-to-volatility (Sharpe) ratio for the equity fund in the previous problem?

> You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in your equity fund and $40,000 in a T-bill money market fund. What a

> What do you think would happen to the expected return on stocks if investors perceived an increase in the volatility of stocks?

> Your client (see previous problem) wonders whether to switch the 70% that is invested in your fund to the index portfolio. a. Explain to your client the disadvantage of the switch. b. Show your client the maximum fee you could charge (as a percent of t

> You estimate that a passive portfolio invested to mimic the S&P 500 stock index provides an expected rate of return of 13% with a standard deviation of 25%. a. Draw the CML and your fund’s CAL on an expected return/standard deviation diagram. b. What i

> Suppose the same client as in the previous problem prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio’s standard deviation will not exceed

> Suppose the same client in the previous problem decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 15%. a. What is the proportion y? b. What ar

> Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. a. What are the expected return and standard deviation of your clientâs portfolio? b. Suppose your risky portfolio includes the follo

> Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits ABC Company common stock worth $100,000. Her financial adviser provided her with the following estimates: The correlation coefficient of ABC stock returns with the origin

> Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 or $150,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. a. If you require a risk premium of 10%, how mu

> What has been the historical average real rate of return on stocks, Treasury bonds, and Treasury bills?

> Suppose you’ve estimated that the fifth-percentile value at risk of a portfolio is −30%. Now you wish to estimate the portfolio’s first-percentile VaR (the value below which lie 1% of the returns). Will the 1% VaR be greater or less than −30%?

> What are some comparative advantages of investing your assets in the following: (LO 4-2) a. Unit investment trusts. b. Open-end mutual funds. c. Individual stocks and bonds that you choose for yourself.

> Balanced funds and asset allocation funds each invest in both the stock and bond markets. What is the difference between these types of funds?

> Would you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed-income unit investment trust? Why?

> What are the advantages and disadvantages of exchange-traded funds versus mutual funds?

> What are some differences between a unit investment trust and a closed-end fund?

> What is a 12b-1 fee?

> George Stephensonâs current portfolio of $2 million is invested as follows: Stephenson soon expects to receive an additional $2 million and plans to invest the entire amount in an exchange-traded fund that best complements the current p

> The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b1 fees of 0.5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth ye

> You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund’s expense ratio is 1.2%. Wha

> The New Fund (from Problem 22) had an expense ratio of 1.1%, and its management fee was 0.7%. a. What were the total fees paid to the fund’s investment managers during the year? b. What were the other administrative expenses?

> The New Fund had average daily assets of $2.2 billion in the past year. The fund sold $400 million and purchased $500 million worth of stock during the year. What was its turnover ratio?

> Consider a mutual fund with $200 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $2 million. The stocks included in the f

> a. Impressive Fund had excellent investment performance last year, with portfolio returns that placed it in the top 10% of all funds with the same investment policy. Do you expect it to be a top performer next year? Why or why not? b. Suppose instead th

> Why can closed-end funds sell at prices that differ from net value while open-end funds do not?

> City Street Fund has a portfolio of $450 million and liabilities of $10 million. a. If there are 44 million shares outstanding, what is the net asset value? b. If a large investor redeems 1 million shares, what happens to the portfolio value, to shares

> Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of .75%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and has an expense ratio of .25%. Assume the rate of return on both funds’ portfolios (before any fees) is

> A closed-end fund starts the year with a net asset value of $12. By year-end, NAV equals $12.10. At the beginning of the year, the fund is selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid

> A three-asset portfolio has the following characteristics: What is the expected return on this three-asset portfolio?

> Corporate Fund started the year with a net asset value of $12.50. By year-end, its NAV equaled $12.10. The fund paid year-end distributions of income and capital gains of $1.50. What was the rate of return to an investor in the fund?

> The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding. a. What is the NAV of the fund? b. If the fund sells for $36 per share, what is its pre

> Reconsider the Fingroup Fund in the previous problem. If during the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $50 per share and 200,000 shares of stock F at $25 per share, what is th

> The composition of the Fingroup Fund portfolio is as follows: The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $30,000. There are 4 million shares outstanding. What is the net asset value of

> If the offering price of an open-end fund is $12.30 per share and the fund is sold with a front-end load of 5%, what is its net asset value?

> An open-end fund has a net asset value of $10.70 per share. It is sold with a front-end load of 6%. What is the offering price?

> Open-end equity mutual funds commonly keep a small fraction of total investments in very liquid money market assets. Closed-end funds do not have to maintain such a position in “cashequivalent” securities. What difference between open-end and closed-end

> What are the benefits to small investors of investing via mutual funds? What are the disadvantages?

> How does buying on margin magnify both the upside potential and downside risk of an investment portfolio?

> What is the role of an underwriter? A prospectus?

> A portfolio of no dividend-paying stocks earned a geometric mean return of 5% between January 1, 2014, and December 31, 2020. The arithmetic mean return for the same period was 6%. If the market value of the portfolio at the beginning of 2014 was $100,00

> Why have average trade sizes declined in recent years?

> What are the differences between a limit order and a market order?

> In what circumstances are private placements more likely to be used than public offerings?

> How do security dealers earn their profits?

> What is the difference between a primary and a secondary market?

> Suppose that you sell short 500 shares of XTel, currently selling for $40 per share, and give your broker $15,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after on

> Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a. What is the percentage increase in the net

> On January 1, you sold short one round lot (i.e., 100 shares) of Snow’s stock at $21 per share. On March 1, a dividend of $3 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per

> You’ve borrowed $20,000 on margin to buy shares in Ixnay, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will

> Here is some price information on Fincorp stock. Suppose first that Fencer trades in a dealer market a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? b. Suppose you have submitted an orde

> An analyst estimates that a stock has the following probabilities of return depending on the state of the economy. What is the expected return of the stock?

> Preferred stock yields often are lower than yields on bonds of the same quality because of: a. Marketability b. Risk c. Taxation d. Call protection

> 11) The ________ unit helps prepare photographic exhibits for courtroom presentation. 12) Forensic science is the application of science to the ________. 13) Fingerprinting replaced ________ as a method of personal identification. 14) The ________ ana

> 1) The “father of forensic toxicology” is considered to be ________. 2) ________ undertook the first definitive study of fingerprints and developed a methodology of classifying them for filing. 3) ________ was the first to use a comparison microscope t

> 11) A facial recognition system can be easily tricked by a ________ picture. 12) One of the main problems with retina biometrics is that viable images can be affected by ________. 13) The FBI has contracted the help of ________ to implement and maintai

> 1) The ________ generation module is responsible for saving all of the raw data produced by feature extraction and putting it into a simple and easy-to-read format for the system. 2) Early researchers in facial recognition used ________ to automate fac

> 21) Livor mortis continues for up to ________ hours after death. 22) Time of death can be estimated by measuring the concentration of ________ in the victim’s eye fluids. 23) The ________ of a skeleton can be determined by observing the shape of the pe

> 11) Petechiae are caused by the escaping of blood into the tissue as a result of ________ bursting. 12) A(n) ________ in its broadest definition is simply the examination of a body after death. 13) During decomposition, the body may experience ________

> 1) Disease and environmental abuse fall under the ________ category of manner of death. 2) The goal of a(n) ________ autopsy is to determine the cause and manner of death. 3) Hemorrhages in the eyelids are known as ________. 4) Types of injuries that

> 11) The three kinds of crime scene fingerprints are visible prints, latent prints, and ________ prints. 12) Four common chemical methods for visualizing latent prints are SuperGlue fuming, ninhydrin, physical developer, and ________ fuming. 13) The ana

> 1) Fingerprints are a reproduction of ________ skin ridges found on the palm side of the fingers and thumbs. 2) The identity, number, and relative location of ridge characteristics impart ________ to a fingerprint. 3) Ridge characteristics are also kno

> 11) In general, as the force of the impact on the source of blood increases, the velocity of the blood droplets emanating from the source ________. 12) Drops propelled from a pointed surface will be smaller and the pattern more ________. 13) Cast-off p

> In cooperation with the medical examiner or coroner, what type of evidence is to be retrieved from a deceased victim for examination in the crime laboratory?

> 1) ________ spatter is projected outward and away from the source. 2) In general, as both the force and velocity of impact increase, the diameter of the resulting blood droplets ________. 3) The location of injury, the size of the wound created, the di

> 11) The process of identification requires the adoption of testing procedures that give characteristic results for specific ________ materials. 12) The product rule is used to determine the frequency of occurrence of ________ profiles, typically determi

Question: What are some differences between hedge funds

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