(ii) Consider a portfolio of mid-cap stocks with 0.75 beta against a benchmark in a bull market which gained 6% above risk-free rate, say T-bills. If the portfolio actually makes 5.5% and the manager had sold the benchmark index to hedge the portfolio market exposure at the beginning against her managed portfolio, what is the alpha ported on the portfolio? What could have contributed to the alpha?

Please give detailed answer with explanation to the answer given.

FIN367e Alternative Investments Group-based Assignment July 2017 Presentation FIN367e Group-based Assignment GROUP-BASED ASSIGNMENT This assignment is worth 30% of the final mark for FIN367e Alternative Investments. The cut-off date for this assignment is 05 September 2017, 2355hrs. This is a group-based assignment. You should form a group of 4 members from your seminar group. Each group is required to upload a single report to Canvas via your respective seminar group. Please elect a group leader. The responsibility of the group leader is to upload the report on behalf of the group. It is important for each group member to contribute substantially to the final submitted work. All group members are equally responsible for the entire submitted assignment. If you feel that the work distribution is inequitable to either yourself or your group mates, please highlight this to your instructor as soon as possible. Your instructor will then investigate and decide on any action that needs to be taken. It is not necessary for all group members to be awarded the same mark. Question 1 (a) Assume CAPM holds and the expected return for the benchmark market for this security is 8%. With a risk-free rate of 2% and beta of 0.65, what is the alpha of this investment if the actual return turns out to be 5.5%? (8 marks) (b) Having dealt with traditional investments prior to this, you intend to explore alternative investments. Your investment advisor highlights the following nature of alternative investments: i) ii) iii) iv) diversification; illiquidity; inefficiency; and non-normality. Analyse and elaborate on each of these characteristics. (12 marks) (c) A junior in an investment management firm comes across the term 'portable alpha'. He is unfamiliar with this and asks for your help to explain this concept. (i) (ii) Describe the portable alpha strategy. (7 marks) Consider a portfolio of mid-cap stocks with 0.75 beta against a benchmark in a bull market which gained 6% above risk-free rate, say T-bills. If the portfolio actually makes 5.5% and the manager had sold the benchmark index to hedge the portfolio market exposure at the beginning against her managed portfolio, what is the alpha ported on the portfolio? What could have contributed to the alpha? (8 marks) SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 2 of 4 FIN367e Group-based Assignment Question 2 (a) Fill in the following table to evaluate the key differences between venture capital and leverage buyout. (8 marks) (b) The table below gives three scenarios of a start-up company's potential outcome in profitability. (i) (ii) (iii) Calculate the weighted average valuation for this start-up upon sale after 3 years. (12 marks) Given that the annual required rate of return is 50%, what is the current valuation of the start-up? (5 marks) If a venture capital fund is willing to invest $500,000 in this start-up, what is the percent ownership it will be buying into? (5 marks) SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4 FIN367e Group-based Assignment Question 3 (a) Analyse the strengths and benefits of the following approaches in gaining exposure to commodity investing. i) ii) iii) Purchase the commodity outright Invest in the shares of companies that produce the commodity Enter into commodity futures contracts (12 marks) (b) Describe the benefits of managed futures as a vehicle for alternative investments. (8 marks) Question 4 Compare and appraise the following classifications of asset classes for investments against the characteristics of real estate investments: i) capital assets; ii) assets that are used as economic inputs; and iii) assets that store value. ---- END OF ASSIGNMENT ---- SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 4 of 4