Chapter 6: Q10I (page 624)
During a particular year, the T-bill rate was 6%, the market return was 14%, and a portfolio manager with beta of .5 realized a return of 10%. Evaluate the manager based on the portfolio alpha.
0; the manager didn’t show superior performance in the given year.
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With a traditional tax shelter (Spreadsheet 21.5), compare the effect on real consumption during retirement of a 1% increase in the rate of inflation to a 1% increase in the tax rate.
For Questions 1–4, answer true or false. Explain your answer.
Question: A currency-hedged foreign-stock portfolio return is the weighted average of the foreign stock returns in local currency.
a. Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now?
b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to ( a )? Give a numerical example.
Under the provisions of a typical corporate defined benefit pension plan, the employer isresponsible for:
a. Paying benefits to retired employees.
b. Investing in conservative fixed-income assets.
c. Counseling employees in the selection of asset classes.
d. Maintaining an actuarially determined, fully funded pension plan.
A hedge fund with net asset value of \(62 per share currently has a high water mark of\)66. Is the value of its incentive fee more or less than it would be if the high water markwere $67?
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