Chapter 6: Q2B (page 622)
The board of a large pension fund noticed that the alpha value of the portfolio of one of its contract managers has recently increased. Should the fund increase the allocation to this portfolio?
Probably Yes
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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.
In addition to expected longevity, what traits might affect an individual’s demand for alife annuity?
Consider the following information:
r US = 5 5%
r UK = 5 7%
E0 = \(2 per pound
F0 = \)1.97/£ (one-year delivery)
where the interest rates are annual yields on U.S. or U.K. bills. Given this information:
a. Where would you lend?
b. Where would you borrow?
c. How could you arbitrage?
The same ship owner advertises a tariff whereby the freight charged for all cargo will be the same. What kind of good can the ship owner expect to attract?
A hedge fund with $1 billion of assets charges a management fee of 2% and an incentive fee of 20% of returns over a money market rate, which currently is 5%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of:
a. 2 5%
b. 0
c. 5%
d. 10%
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