Please refer to the attached files
Microsoft Word - FINA 6223 Summer 2020 PS3 Problem #1 [18 points] On blackboard you will find the data file named FINA_6223_Summer2020_PS3.xlsx. Tab Q1 contains monthly returns data for 3 US ETFs, the market portfolio, and the risk-free return. A. [6 points] Compute the Sharpe, Treynor, and Jensen measures for the 3 funds and the market (no Jensen necessary for the market as it would be zero). Evaluate the two funds based on these ratios. If you select one fund for your entire portfolio, which do you prefer and why? B. [6 points] Compute the M2 and T2 measures. What information do these measures add to your performance analysis from Part A? C. [4 points] Compute the tracking error for each fund as the return deviation from the market. Compute the information ratio for each fund as the ratio of the average tracking error to the standard deviation of that tracking error. What do you learn from the information ratio? D. [2 points] The TUSA charges 1.57% annual expenses to actively re-weight the universe of US stocks. Based on the performance analysis, is there any evidence that those fees are justifiable? Problem 2: Computing returns [12 points] The following table provides the end of year prices and dividend information for GDUB stock. At the end of each year 2014 to 2018, an investor purchases 100 shares of GDUB. At the end of 2019, the investor collects the last dividend and sells all shares. tiadiatta Cross-Out A. [4 points] What is the arithmetic average time-weighted annual rate of return? B. [4 points] What is the geometric average time-weighted annual rate of return? C. [4 points] What is the dollar-weighted annual rate of return? A suggestion is to construct a chart of all cash flows. 3. Computing more returns [12 points] A company makes a $50 million investment. At the end of the first 3 quarters, they withdrawal $5 million. Using the information below, answer the following questions: A. [4 points] Compute the simple Holding Period Return (HPR) B. [4 points] Compute the annual time-weighted return C. [4 points] Compute the annual dollar-weighted return Year End of year price Dividend paid at end of year 2014 60.00$ 1.00$ 2015 65.00$ 1.10$ 2016 72.00$ 1.25$ 2017 75.00$ 1.25$ 2018 68.00$ 1.30$ 2019 75.00$ 1.30$ Time Investment Contribution (withdrawal) Investment Value (inclusive of withdrawals and contributions) 0 50,000,000 50,000,000 0.25 -5,000,000 47,000,000 0.5 -5,000,000 41,000,000 0.75 -5,000,000 35,000,000 1 0 38,000,000 Problem 4: Comparing performance [7 points] Two investment professionals are comparing their return performance. The first professional managed portfolios with an average return of 10% and the second professional managed portfolios with a 12% rate of return. The beta of the first portfolio was 0.8 while the beta of the second was 1.1. The risk-free rate of return was 2% and the expected market return is 8%. A. [5 points] Which manager was a better selector of individual stocks, and why? B. [2 points] Plot both of the portfolios on the security market line. Problem 5: Closed End Funds [10 points] See the worksheet named “Closed End Fund” for the prices and NAV of a recently IPO-ed closed end fund, HGLB. A. [5 points] For each day, compute the premium (discount) of the price to the NAV. Compute the average daily premium. B. [3 points] Plot the premium (discount) through time on a graph. C. [2 points] Explain if this fund exhibits the same premium(discount) pattern around its IPO and post-IPO period as the example we discussed in class. Problem 6: Mutual Fund Returns [15 points] You are considering investing in a mutual fund’s A share class that has a 3% sales charge (front-end load) and annual expense ratio of 1.0%. Alternatively, you might invest in that fund’s C shares that have no load and an annual expense ratio of 1.5%. Assume the fund’s assets return 9% annually. a. [3 points] For a 2-year holding period, which share class will you prefer? b. [3 points] For a 50-year holding period, which share class will you prefer? c. [5 points] After how many years will the two mutual fund share classes result in the same future wealth amounts? d. [2 points] How does your answer to part c. change if the fund’s assets return 14% per year? e. [2 points] What accounts for the greater expenses of the C-shares, compared to the A- shares?