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FIN - Investment Analysis and Portfolio Management - Chapter 24 & 25 Problems




Question;Problem 24-3Consider the recent performance of the Closed Fund, a closed-end fund devoted to finding undervalued, thinly traded stocks:PeriodNAVPremium/Discount0$10.000.0%1$11.25-5.0%2$9.852.3%3$10.50-3.2%4$12.30-7.0%Here, price premiums and discounts are indicated by pluses and minuses, respectively, and Period 0 represents Closed Fund?s initiation date.a. Calculate the average return per period for an investor who bought 100 shares of the Closed Fund at the initiation and then sold her position at the end of Period 4.b. What was the average periodic growth rate in NAV over that same period?c. Calculate the periodic return for another investor who bought 100 shares of Closed Fund at the end of Period 1 and sold his position at the end of Period 2.d. What was the periodic growth rate in NAV between Periods 1 and 2?Problem 24-4CMD Asset Management has the following fee structure for clients in its equity fund:1.00%of first$5,000,0000.75%of next$5,000,0000.60%of next$10,000,0000.40%above$20,000,000a. Calculate the annual dollar fees paid by Client 1, who has $27 million under management, and Client 2, who has $97 million under management.b. Calculate the fees paid by both clients as a percentage of their assets undermanagement.c. What is the economic rationale for a fee schedule that declines (in percentage terms) with increases in assets under management?Problem 25-3You have been assigned the task of comparing the investment performance of five different pension fund managers. After gathering 60 months of excess returns (i.e., returns in excess of the monthly risk-free rate) on each fund as well as the monthly excess returns on the entire stock market, you perform the regressions of the form:(Rfund? RFR)t =? +?(Rmkt? RFR)t + etYou have prepared the following summary of the data, with the standard errors for each of the coefficients listed in parentheses.a. Which fund had the highest degree of diversification over the sample period? How is diversification measured in this statistical framework?b. Rank these funds? performance according to the Sharpe, Treynor, and Jensen measures.c. Since you know that according to the CAPM the intercept of these regressions (i.e.,alpha) should be zero, this coefficient can be used as a measure of the value added provided by the investment manager. Which funds have statistically outperformed and underperformed the market using a two-sided 95 percent confidence interval?(Note: The relevant t-statistic using 60Problem 25-7Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio:BenchmarkManager AManager BWeightReturnWeightReturnWeightReturnStock0.6-5.00%0.5-4.00%0.3-5.00%Bonds0.3-3.50%0.2-2.50%0.4-3.50%Cash0.10.30%0.30.30%0.30.30%a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A?s actual portfolio, and (3) the overall return to Manager B?s actual portfolio. Briefly comment on whether these managers have under- or outperformed the benchmark fund.b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from Part a, comment on whether these managers have added value through their selection skills, their allocation skills, or both.


Paper#48544 | Written in 18-Jul-2015

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