You are a hedge fund manager and need to create a portfolio that will hopefully outperform...

 

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You are a hedge fund manager and need to create a portfolio that will hopefully outperform the stock market. The expected return and risk of your potential choices are: Asset S&P 500 Real Estate Fund (REITS) International Stock Fund S&P 500 REITS International Stock Fund Expected Return (%) 8% 12% 14% S&P 500 0.0256 0.0128 0.0128 0.0400 REITS Standard Deviation (%) 16% Variance-Covariance Matrix 0.0176 0.0088 20% 22% International Stock Fund 0.0176 0.0088 0.0484 The risk-free rate over this period is 3%. All given rates are annual rates. a) If you choose to hold 25% of your wealth in the S&P 500, 50% in REITS, and the rest in the international stock fund, what is the expected return of your portfolio? [2 marks] 850.25% 0.08 +0.54 0.12 +0++x0.14 = 11.5% b) What is the standard deviation of your portfolio? [4 marks] Varop = wi²si²+ W₂²√₂ + W5 53 +2 WW2 Cov12 +2 Wing Cov13 +24214, 2 = 0.² 0.10² + 0.5² 0.2² +2.25² 0.22² +2·0.25-0.5*0.0128 +2-Qur.225.0.0176 +2.0.250.5x0.0088 = 0.022225 c) Suppose the S&P 500 is a good proxy for the market portfolio. What are the individual betas for each asset in your portfolio? What is your 0.0176 0.162 -=0.6875 Bp=0.25.1 +0.5× 0.256 +0.15-0.6875 = 0.549875 d) If the actual annual returns of your portfolio over the last 10 years was 15%. Compared to your expected portfolio return calculation from part (a), what is the alpha of your portfolio? [1 mark] portfolio's beta? [4 marks] PM = 1 BRAUT = 0.01723² = 0.256 Pint'l. 这里他让我用a问里的Er来当作alpha里的Er?可是不应该是用CAPM的吗?到底 这里怎么算?还有用CAPM算的Er和a问里的Er本质区别是什么? e) Now you are having doubts as to whether the CAPM is the right asset pricing model for your portfolio and now thinking about using an alternative model, such as the APT, because your portfolio is exposed to more risk factors than you thought. The betas to the risk factors and expected risk premium are: 这个就是 这里就是 Factor Beta Expected Risk Premium (%) ? (c) (₂) 2 出来的嗎( CAPM (Market) Size Book-to- Market ? 1.5 0.5 4.0% 6.5% ER (CAPM) -1423? What is your portfolio's expected returns using APT? What is the portfolio's alpha with respect to APT? [4 marks] You are a hedge fund manager and need to create a portfolio that will hopefully outperform the stock market. The expected return and risk of your potential choices are: Asset S&P 500 Real Estate Fund (REITS) International Stock Fund S&P 500 REITS International Stock Fund Expected Return (%) 8% 12% 14% S&P 500 0.0256 0.0128 0.0128 0.0400 REITS Standard Deviation (%) 16% Variance-Covariance Matrix 0.0176 0.0088 20% 22% International Stock Fund 0.0176 0.0088 0.0484 The risk-free rate over this period is 3%. All given rates are annual rates. a) If you choose to hold 25% of your wealth in the S&P 500, 50% in REITS, and the rest in the international stock fund, what is the expected return of your portfolio? [2 marks] 850.25% 0.08 +0.54 0.12 +0++x0.14 = 11.5% b) What is the standard deviation of your portfolio? [4 marks] Varop = wi²si²+ W₂²√₂ + W5 53 +2 WW2 Cov12 +2 Wing Cov13 +24214, 2 = 0.² 0.10² + 0.5² 0.2² +2.25² 0.22² +2·0.25-0.5*0.0128 +2-Qur.225.0.0176 +2.0.250.5x0.0088 = 0.022225 c) Suppose the S&P 500 is a good proxy for the market portfolio. What are the individual betas for each asset in your portfolio? What is your 0.0176 0.162 -=0.6875 Bp=0.25.1 +0.5× 0.256 +0.15-0.6875 = 0.549875 d) If the actual annual returns of your portfolio over the last 10 years was 15%. Compared to your expected portfolio return calculation from part (a), what is the alpha of your portfolio? [1 mark] portfolio's beta? [4 marks] PM = 1 BRAUT = 0.01723² = 0.256 Pint'l. 这里他让我用a问里的Er来当作alpha里的Er?可是不应该是用CAPM的吗?到底 这里怎么算?还有用CAPM算的Er和a问里的Er本质区别是什么? e) Now you are having doubts as to whether the CAPM is the right asset pricing model for your portfolio and now thinking about using an alternative model, such as the APT, because your portfolio is exposed to more risk factors than you thought. The betas to the risk factors and expected risk premium are: 这个就是 这里就是 Factor Beta Expected Risk Premium (%) ? (c) (₂) 2 出来的嗎( CAPM (Market) Size Book-to- Market ? 1.5 0.5 4.0% 6.5% ER (CAPM) -1423? What is your portfolio's expected returns using APT? What is the portfolio's alpha with respect to APT? [4 marks]

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d To calculate the alpha of your portfolio we need to compare the actual annual return of your portf... View the full answer