Chapter 6: Q14C (page 663)
Suppose you forecast the information ratios of the seven international portfolios (as shown in Table 19.9B). Construct the optimal portfolio of the U.S. index with the seven portfolios and assess its performance.
As below
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The chairman provides you with the following data, covering one year, concerning the portfolios of two of the fund’s equity managers (manager A and manager B). Although the portfolios consist primarily of common stocks, cash reserves are included in the calculation of both portfolio betas and performance. By way of perspective, selected data for the financial markets are included in the following table.
a. Calculate and compare the alpha of the two managers relative to each other and to the S&P 500.
b. Explain two reasons the conclusions drawn from this calculation may be misleading.
Why does a progressive tax code produce a retirement annuity for a middle-class household that is similar to that which would follow from a flat tax?
You are a U.S. investor considering purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the six month discount on Canadian-dollar forward contracts is - .75% versus the U.S. dollar..
Calculate the expected price change required in the Canadian government bond that would result in the two bonds having equal total returns in U.S. dollars over a six-month horizon.
Assume that the yield on the U.S. bond is expected to remain unchanged.
Under the flat tax (Spreadsheet 21.4), will a 1% increase in ROR offset a 1% increase in the tax rate?
With respect to hedge fund investing, the net return to an investor in a fund of funds would be lower than that earned from an individual hedge fund because of:
a. Both the extra layer of fees and the higher liquidity offered.
b. No reason; funds of funds earn returns that are equal to those of individual hedge funds.
c. The extra layer of fees only.
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