chapter-13-homework

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1.

value:
1.00 points

Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset:

Portfolio

RP

σP

βP

X

15.00

%

31.00

%

1.85

Y

14.00

26.00

1.25

Z

8.30

16.00

.85

Market

11.20

21.00

1.00

Risk-free

4.80

.00

.00


Assume that the tracking error of Portfolio X is 9.40 percent. What is the information ratio for Portfolio X?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)

Information ratio

2.

value:
1.00 points

DW Co. stock has an annual return mean and standard deviation of 14.5 percent and 43 percent, respectively. What is the smallest expected loss in the coming year with a probability of 16 percent?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Smallest expected loss

%

References

eBook & Resources

WorksheetLear

3.

value:
1.00 points

Your portfolio allocates equal funds to the DW Co. and Woodpecker, Inc. DW Co. stock has an annual return mean and standard deviation of 11 percent and 34 percent, respectively. Woodpecker, Inc., stock has an annual return mean and standard deviation of 22 percent and 48 percent, respectively. The return correlation between DW Co. and Woodpecker, Inc., is zero. What is the smallest expected loss for your portfolio in the coming month with a probability of 5 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Smallest expected loss

%

4.

value:
1.00 points

You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 7 percent and 13 percent, respectively. The standard deviations of the assets are 33 percent and 41 percent, respectively. The correlation between the two assets is .49 and the risk-free rate is 5.8 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and Probability answer to 2 decimal places. Omit the “%” sign in your response.)

Sharpe ratio

Smallest expected loss

%

5.

value:
1.00 points

Consider the following information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .97.

Year

Fund

Market

Risk-Free

2008

–15.06

%

–26.5

%

3

%

2009

25.1

19.7

5

2010

12.6

10.0

2

2011

6.6

7.6

4

2012

–1.32

–2.2

3


What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

Sharpe ratio

Treynor ratio


References

eBook & Resources

WorksheetLearning

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