Chapter 6: Q20-7B (page 685)
Which of the following hedge fund types is most likely to have a return that is closest to risk-free?
a. A market-neutral hedge fund.
b. An event-driven hedge fund.
c. A long-short hedge fund.
Option a.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Use the following information to answer Problems l2–16:
Primo Management Co. is looking at how best to evaluate the performance of its managers. Primo has been hearing more and more about benchmark portfolios and is interested in trying this approach. As such, the company hired Sally Jones, CFA, as a consultant to educate the managers on thebest methods for constructing a benchmark portfolio, how best to choose a benchmark, whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking.
For the sake of discussion, Jones put together some comparative two-year performance numbers that relate to Primo’s current domestic funds under management and a potential benchmark.
As part of her analysis, Jones also takes a look at one of Primo’s global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks.
The benchmark invested 50% in each—Dutch and British stocks. On average, the British stocks outperformed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period, while the pound depreciated 2% versus the dollar. In terms of the local return, Primo outperformed the benchmark with the Dutch investments but underperformed the index with respect to the British stocks.
Question: If Primo decides to use return-based style analysis, will the R2 of the regression equation of a passively managed fund be higher or lower than that of an actively managed fund?
If you were to invest $10,000 in the British bills of Problem 9, how would you lock in the dollar-denominated return?
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.
For Questions 1–4, answer true or false. Explain your answer.
Question: Due to currency risk, dollar-denominated returns of international portfolios will have a higher standard deviation than local-currency-denominated returns.
Bill Smith is evaluating the performance of four large-cap equity portfolios: funds A, B, C,and D. As part of his analysis, Smith computed the Sharpe ratio and the Treynor measurefor all four funds. Based on his finding, the ranks assigned to the four funds are as follows:
The difference in rankings for funds A and D is most likely due to:
a. A lack of diversification in fund A as compared to fund D.
b. Different benchmarks used to evaluate each fund’s performance.
c. A difference in risk premiums.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
