1、Essentials of Investments (BKM 5th Ed.Answers to Selected Problems Lecture 60 300Purchase of three shares at $100 each. 1 208Purchase of two shares at $110 less dividend income on three shares held. 2 110Dividends on five shares plus sale of one share at price of $90 each. 3 396Dividends on four sha

2、res plus sale of four shares at price of $95 each. 396|110 |Date: 1/1/96 1/1/97 1/1/98 1/1/99| | | | 208300The Dollar-weighted return can be determined by doing an internal rate of return (IRRcalculation. In other words, set the present value of the outflows equal to the presentvalue of the inflows

3、(or the net present value to zero: %1661. 0001661. 01(396 1(110 1(208300321=+=+R R R3. b.5. We need to distinguish between timing and selection abilities. The intercept of the scatterdiagram is a measure of stock selection ability. If the manager tends to have a positive excess return even when the

4、markets performance is merely neutral (i.e., has zero excess return, then we conclude that the manager has on average made good stock picks stock selection must be the source of the positive excess returns.Timing ability is indicated by curvature in the plotted line. Lines that become steeper as you

5、 move to the right of the graph show good timing ability. An upward curvedrelationship indicates that the portfolio was more sensitive to market moves when the market was doing well and less sensitive to market moves when the market was doingpoorly - this indicates good market timing skill. A downwa

6、rd curvature would indicate poor market timing skill.We can therefore classify performance ability for the four managers as follows:a. Bad Goodb. Good Goodc. Good Badd. Bad Bad9. The managers alpha is:10 - 6 + 0.5(14-6 = 010. a (A = 24 - 12 + 1.0(21-12 = 3.0%(B = 30 - 12 + 1.5(21-12 = 4.5%T(A = (24

7、- 12/1 = 12T(B = (30-12/1.5 = 12As an addition to a passive diversified portfolio, both A and B are candidates because they both have positive alphas.b (i The funds may have been trying to time the market. In that case, the SCL of the funds may be non-linear (curved.(ii One years worth of data is to

8、o small a sample to make clear conclusions.(iii The funds may have significantly different levels of diversification. If both have the same risk-adjusted return, the fund with the less diversified portfolio has a higher exposure to risk because of its higher firm-specific risk. Since the above measu

9、re adjusts only for systematic risk, it does not tell the entire story.11. a Indeed, the one year results were terrible, but one year is a short time period from whichto make clear conclusions. Also, the Board instructed the manager to give priority to long-term results.b The sample pension funds ha

10、d a much larger share in equities compared to Alpines. Equities performed much better than bonds. Also, Alpine was told to hold down risk investing at most 25% in equities. Alpine should not be held responsible for an asset allocation policy dictated by the client.c Alpines alpha measures its risk-a

11、djusted performance compared to the markets: = 13.3 - 7.5 + 0.9(13.8 - 7.5 = 0.13%, which is actually above zero!d Note that the last five years, especially the last one, have been bad for bonds and Alpine was encouraged to hold bonds. Within this asset class, Alpine did much better than the index funds. Alpines performance within each asset class has been superior on a risk-adjusted basis. Its disappointing performance overall was due to a heavy asset allocation weighting toward bonds, which was the Boards not Alpines choice.e A t