Chapter 6: Q9I (page 712)
Under the flat tax (Spreadsheet 21.4), will a 1% increase in ROR offset a 1% increase in the tax rate?
No. Both changes simultaneously yield a real annuity of $48,505.
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What type of investors would be interested in a target date retirement fund?Why?
With a progressive tax (Spreadsheet 21.6), compare the effects of an increase of 1% in the lowest tax bracket to an increase of 1% in the highest tax bracket.
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?
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.
Give another example of adverse selection
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