Chapter 6: Q20-12I (page 685)
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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Go to www.mhhe.com/bkm and link to the material for Chapter 18, where you will find five years of monthly returns for two mutual funds, Vanguard’s U.S. Growth Fund and U.S. Value Fund, as well as corresponding returns for the S&P 500 and the Treasury-bill rate.
a. Set up a spreadsheet to calculate each fund’s excess rate of return over T-bills in each month.
b. Calculate the standard deviation of each fund over the five-year period.
c. What was the beta of each fund over the five-year period? (You may wish to review the spreadsheets from Chapters 5 and 6 on the Index model.)
d. What were the Sharpe, Jensen, and Treynor measures for each fund?
Does the use of universes of managers with similar investment styles to evaluate relativeinvestment performance overcome the statistical problems associated with instability ofbeta or total variability?
Now suppose the investor in Problem 5 also sells forward £5,000 at a forward exchange rate of $2.10/£.
a. Recalculate the dollar-denominated returns for each scenario.
b. What happens to the standard deviation of the dollar-denominated return? Compare it to both its old value and the standard deviation of the pound-denominated return.
With no taxes or inflation (Spreadsheet 21.1), what would be your retirement annuity if you increase the savings rate by 1%?
Why is it harder to assess the performance of a hedge fund portfolio manager than that of a typical mutual fund manager?
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