The passive strategy affected by capital allocation decision

Assignment Help Financial Management

Reference no: EM131969527

You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 22%. You manage an active portfolio with expected return 18% and standard deviation 31%. The risk-free rate is 4%. Your client's degree of risk aversion is A = 2.4.

a. If he chose to invest in the passive portfolio, what proportion, y, would he select? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is the fee (percentage of the investment in your fund, deducted at the end of the year) that you can charge to make the client indifferent between your fund and the passive strategy affected by his capital allocation decision (i.e., his choice of y)? (Do not round intermediate calculations. Round your answer to 2 decimal places.

Fee % per year

Reference no: EM131969527

Questions Cloud

Unique characteristics of organizational markets : Can you suggest other, unique characteristics of organizational markets that set them apart from consumer markets?

Hedge the transaction exchange risk : If you have debt in a foreign currency due in the future and you want to hedge the transaction exchange risk,

How much capital steven will need to be able to retire : Using the annuity method, calculate how much capital Steven will need to be able to retire at age 68. Given his current resources, does he have sufficient.

Breach of hipaa rules : Do you think there is a problem with health information managers sharing passwords to access others patients information and if so do you think this is a breach

The passive strategy affected by capital allocation decision : You can charge to make the client indifferent between your fund and the passive strategy affected by his capital allocation decision (i.e., his choice of y)?

Explain power and compare how it relates to leadership : 1. Explain power and compare how it relates to leadership 2. Analyze the five sources of power

What is the value of the company equity : What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)

What is the standard deviation of the returns : The economy has a 10 percent chance of booming, 60 percent chance of being normal, and 30 percent chance of going into a recession.

Develop a communication control and monitoring process : Can somone tell me how to develop a Communication Control and Monitoring Process for a project plan.

User Account

All Pages