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Calculate the holding period return on a before-tax

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a) Calculate the holding period return on a before-tax basis for each of these four investments.

b) Assuming that the Stalchecks's ordinary income is currently being taxed at a combined (federal and state) tax rate of 38% and that they would pay a 15% capital gains tax on dividends and capital gains for holding periods longer than 121 months, determine the after-tax HPR for each of their four investments.

c) Recognizing that all on the Stalchecks investments were unrealized, calculate the before-tax portfolio HPR for their vehicle portfolio during the past calendar year. Evaluate this return relative to its current income and capital gain components.

d) Use the HPR calculated in question c to compute Jensen's measure (Jensen's alpha). Use that measure to analyze the performance of the Stalchecks portfolio on a risk- adjusted, market adjusted basis. ent on your findings. Is it reasonable to use Jensen's measure to evaluate a four- investment portfolio? Why or why not?

e) on the basis of your analysis in questions a,c, and d, what, if any, recommendtions might you offer the Stalchecks relative to the revision of their portfolio? Explain your recommendations.

 

Reference no: EM132967527

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