Chapter 6: Q8I (page 623)
Conventional wisdom says one should measure a manager’s investment performance over an entire market cycle. What arguments support this contention? What arguments contradict it?
As below
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Suppose you could defer capital gains tax to the last year of your retirement (Spreadsheet 21.9). Would it be worthwhile given the progressivity of the tax code.
If the current exchange rate is \(1.75/£, the one-year forward exchange rate is \)1.85/£, and the interest rate on British government bills is 8% per year, what risk-free dollar denominated return can be locked in by investing in the British bills?
For Questions 1–4, answer true or false. Explain your answer.
Question: The principle of diversification assures us that diversifying a U.S. portfolio internationally will reduce standard deviation.
Renée Michaels, CFA, plans to invest $1 million in U.S. government cash equivalents for the next 90 days. Michaels’s client has authorized her to use non-U.S. government cash equivalents, but only if the currency risk is hedged to U.S. dollars by using forward currency contracts.
a. Calculate the U.S.-dollar value of the hedged investment at the end of 90 days for each of the two cash equivalents in the table below. Show all calculations.
b. Briefly explain the theory that best accounts for your results.
c. Based upon this theory, estimate the implied interest rate for a 90-day U.S. government cash equivalent.
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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