BUS 405 Week 4

BUS 405 Week 4 Quiz

BUS 405 Week 4 Assignment Performance Metrics Chapter 13 Problem 22

Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay.

You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate.

Year

Papa Fund

Mama Fund

Market

Risk-Free

2008

-12.6%

-22.6

-24.5%

1%

2009

25.4

18.5

19.5

3

2010

8.5

9.2

9.4

2

2011

15.5

8.5

7.6

4

2012

2.6

-1.2

-2.2

2

Calculate the Sharpe ratio, Treynor ratio, Jensens alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.

Discussion Questions

Complete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.

a. Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone.

State of Economy

Probability of State of the Economy

Security Return if State Occurs

Recession

.30

-8%

Normal

.40

13

Boom

.30

23

b. Using the information in the previous question, calculate the standard deviation of returns.

c. Repeat Questions 1 & 2 assuming that all three states are equally likely.

Complete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .5, what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 8 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 1.80, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.