Consider the following end of year prices, rounded to a dollar of DGT (SPDR Global Dow) 150 multinational blue-chip companies, and IWO (iShares Russell 2000 Growth) small-capitalization growth sector of the U.S. equity market. Answer the questions below using the log-returns. Whenever appropriate, assume that the degree of integration of US market is 0.70, the correlation of US market with the global market is 0.45, there is no liquidity premium, and the Sharpe ratio of the global market is 0.30. Year DGT IWO 2010 60 87 2011 54 91 2012 59 102 2013 69 139 What is the expected return on IWO? Select one: a. 15.6% b. 4.9% c. 10.8% d. 7.2%

Consider an US-based foundation with spending rate of 3 percent and cost of earning investment returns has averaged 50 basis points annually. The asset allocation and the set of capital market expectations are shown below. The expected long-term inflation rate is 2.5 percent.

Table 3 Capital Market Expectations

Asset class		E(ri)	si	Correlations
				A	B	C	D
A	US equities	9%	18%	1
B	Ex-US equities	8	14	0.60	1
C	US bonds	4	8	0.30	0.20	1
D	Real estate	1	7	0.50	0.40	0.10	1

Table 4 Corner portfolios

Portfolio	E(rp)	sp	Sp	wi
				A	B	C	D
1	9.0%	18.0%	0.39	100%	0%	0%	0%
2	7.9	16.7	0.35	65	35	0	0
3	7.5	15.4	0.38	37	53	0	10
4	5.0	12.4	0.36	0	25	43	32
5	4.6	10.1	0.32	0	11	55	34

What is the weight of US equities in the strategic asset allocation that satisfies the foundation return requirement?

Select one:

a.

37.32%

b.

24.08%

c.

16.28%

d.

30.28%

Clear my choice

linreg

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