Example 71 Risk and Return Characteristics of an Equity Mutual Fund

You are analyzing Sendar Equity Fund, a midcap growth fund that has been in existence for 24 months. During this period, it has achieved a mean monthly return of 1.50 percent with a sample standard deviation of monthly returns of 3.60 percent. Given its level of systematic (market) risk and according to a pricing model, this mutual fund was expected to have earned a 1.10 percent mean monthly return during that time period. Assuming returns are normally distributed, are the actual results...

Forecast XNumber of Analysts n

Because the sample is a small fraction of the number of analysts who follow this stock, assume that we can ignore the finite population correction factor. A. What are the mean forecast and standard deviation of forecasts B. What aspect of the data makes us uncomfortable about using Rabies to construct confidence intervals for the population mean forecast 9. Explain the differences between constructing a confidence interval when sampling from a normal population with a known population variance...

Example 57 Probability That a Lending Facility Covenant Is Breached

Abraham Moivre 1667

You are evaluating the bonds of a below-investment-grade borrower at a low point in its business cycle. You have many factors to consider, including the terms of the company's bank lending facilities. The contract creating a bank lending facility such as an unsecured line of credit typically has clauses known as covenants. These covenants place restrictions on what the borrower can do. The company will be in breach of a covenant in the lending facility if the interest coverage ratio, EBITDA...

Example 46 Conditional Probabilities and Predictability of Mutual Fund Performance

The purpose of the Kahn and Rudd 1995 study, introduced in Example 4-2, was to address the question of repeat mutual fund winners and losers. If the status of a fund as a winner or a loser in one period is independent of whether it is a winner in the next period, the practical value of performance ranking is questionable. Using the four events defined in Example 4-2 as building blocks, we can define the following events to address the issue of predictability of mutual fund performance Fund is a...

Kurtosis In Return Distributions

In the previous section, we discussed how to determine whether a return distribution deviates from a normal distribution because of skewness. One other way in which a return distribution might differ from a normal distribution is by having more returns clustered closely around the mean being more peaked and more returns with large deviations from the mean having fatter tails . Relative to a normal distribution, such a distribution has a greater percentage of small deviations from the mean...

Solving For Rates Number Of Periods Or Size Of Annuity Payments

In the previous examples, certain pieces of information have been made available. For instance, all problems have given the rate of interest, r, the number of time periods, N, the annuity amount, A, and either the present value, PV, or future value, FV. In real-world applications, however, although the present and future values may be given, you may have to solve for either the interest rate, the number of periods, or the annuity amount. In the subsections that follow, we show these types of...

480x2-220x-200

The left-hand side of this equation details the outflows 200 at time t 0 and 225 at time t 1. The 225 outflow is discounted back one period because it occurs at t 1. The right-hand side of the equation shows the present value of the inflows 5 at time t 1 discounted back one period and 480 the 10 dividend plus the 470 sale proceeds at time t 2 discounted back two periods . 9 In the United States, the money-weighted return is frequently called the dollar-weighted return. We follow a standard...

Client Invests 5million Portfolio And Invests 5 Percent Of It In A Money Market Fund Projected To Earn3 Percent

Table 1-6 shows how the initial investment of 4,329.48 can actually generate five 1,000 withdrawals over the next five years. TABLE 1-6 How an Initial Present Value Funds an Annuity Time at the Beginning of Ending Amount Before Available After Period the Time Period Withdrawal Withdrawal Withdrawal 1,952.38 1,000 952.38 5 952.38 952.38 1.05 1,000 1,000 0 To interpret Table 1-6, start with an initial present value of 4,329.48 at t 0. From t 0 to t 1, the initial investment earns 5 percent...