Please answer the 6 questions in ASSIGN8 word file. Solutions of the same questions but with different answers are provided in ASSIGN8_SOLUTION_MANUAL pdf file.I need you to provide solutions based on ASSIGN8 word file numbers. You can use excel for the numerical problems. And, please paraphrase, reword or restructure the theoretical answers and the solutons words and sentences to make it look different but with the same meaning and sense.

Use the following information for Questions #1 and #2. Please refer to the following table of monthly returns for a hedge fund and an index portfolio. For the purpose of computation, the hurdle rate is the U.S. T-bill rate, assumed to be 5 percent per year. Month Hedge Fund Returns (%) Index Returns (%) January 3.50 2.40 February 4.00 4.00 March 2.00 1.60 April 2.00 3.00 May 1.00 4.20 June 0.90 2.00 July 1.00 2.50 August 1.70 2.10 September 2.70 2.00 October 3.70 0.50 November 0.40 3.10 December 3.20 0.20 1. A. Calculate the average rolling returns for the hedge fund if the investor's investment horizon is nine months. A. The hedge fund's average nine-month rolling return: RR9,1 = (2.7 + 1.7 1 + 0.9 1 2 2 + 4 + 3.5)/9 = 0.7556% RR9,2 = 0.7778% RR9,3 = 0.3778% RR9,4 = 0.2444% Average = (0.7556 + 0.7778 + 0.3778 + 0.2444)/4 = 0.54% B. Explain how rolling returns can provide additional information about the hedge fund's performance. Rolling returns can show how consistent the returns are over the investment period and whether there is any cyclicality in the returns. 2. A. Compute the annualized downside deviations for the hedge fund and the index, and contrast them to the standard deviation. The annualized standard deviations for the hedge fund and the index are, respectively, 8.64 percent and 9.19 percent. A hurdle rate of 5% per year equates to a monthly hurdle rate of 5%/12 = 0.4167%. The downside deviation for the hedge fund = [28.78/(12 1)] 12 = 5.60%. The downside deviation for the index = [65.04/(12 1)] 12 = 8.42%. The downside deviation is lower than the standard deviation because downside deviation takes into account only the deviations on the downside. The downside deviation of the hedge fund is lower than that of the index in this case. B. Compute the Sortino ratio and, based on this statistic, evaluate the performance of the hedge fund against the performance of the index portfolio. Annualized return for the hedge fund = 0.6613% 12 = 7.9356%. Annualized return for the index = 0.449% 12 = 5.388%. The Sortino ratio for the hedge fund = (7.94 5)/5.6 = 0.53. The Sortino ratio for the index = (5.39 5)/8.42 = 0.05. The Sortino ratio of the hedge fund is much higher than that of the index, indicating that it provides greater return per unit of downside risk. 3. An investment manager placed a limit order to buy 500,000 shares of Alpha Corporation at $21.35 limit at the opening of trading on February 8. The closing market price of Alpha Corporation on February 7 was also $21.35. The limit order filled 40,000 shares, and the remaining 460,000 shares were never filled. Some good news came out about Alpha Corporation on February 8, and its price increased to $23.60 by the end of that day. However, by the close of trading on February 14, the price had declined to $21.74. The investment manager is analyzing the missed trade opportunity cost using the closing price on February 8 as the benchmark price. A. What is the estimate of the missed trade opportunity cost if it is measured at a one-day interval after the decision to trade? Missed trade opportunity cost is the unfilled size times the difference between the subsequent price and the benchmark price for buys (or times the difference between the benchmark price and the subsequent price for sells). So, using the closing price on February 8 as the subsequent price, the estimated missed trade opportunity cost is 460,000 ($23.60 $21.35) = $1,035,000. B. What is the estimate of the missed trade opportunity cost if it is measured at a one-week interval after the decision to trade? Using the closing price on February 14 as the subsequent price, the estimated missed trade opportunity cost is 460,000 ($21.74 $21.35) = $179,400. C. What are some of the problems in estimating the missed trade opportunity cost? One of the problems in estimating missed trade opportunity cost is that the estimate depends upon when the cost is measured. As the solutions to Parts A and B of this problem indicate, the estimate could vary substantially when a different interval is used to measure the missed trade opportunity cost. Another problem in estimating the missed trade opportunity cost is that it does not consider the impact of order size on prices. For example, the estimates above assume that if the investment manager had bought the 500,000 shares on February 8, he would have been able to sell these 500,000 shares at $23.60 each on February 8 (or at $21.74 each on February 14). However, an order to sell 500,000 shares on February 8 (or on February 14) would have likely led to a decline in price, and the entire order of 500,000 shares would not have been sold at $23.60 (or at $21.74). Thus, the missed trade opportunity costs above are likely to be overestimates. 4. A client of a broker evaluates the broker's performance by measuring transaction costs with a specified price benchmark. The broker has discretion over the timing of his trades for the client. Discuss what the broker could do to make his performance look good to the client (even though the broker's execution decisions may not be in the best interests of the client) if the price benchmark used by the client for evaluation is the: A. Opening price. If the order is received late in the day, the broker would act based on how the prices have changed during the day. If the order is a sell order and prices have increased since the opening, the broker would immediately fill the order so that the sale price is greater than the benchmark price. If prices have fallen during the day, the broker would wait until the next day to avoid recording a low-priced sale on a day when the market opened higher. The broker would do the opposite if the order is a buy order. If prices have increased since the opening, the broker would wait until the next day to avoid recording a high-priced buy on a day when the market opened lower. If the prices have fallen during the day, the broker would immediately fill the order so that the purchase price is lower than the benchmark price. B. Closing price. The broker would execute the order just before closing so that the transaction price is the same as the closing price. C. Volume-weighted average price (VWAP). The broker would split the order and spread its execution throughout the day so that the transaction price is close to the market VWAP. 5. An investment manager has time-weighted returns for the first six months of the year as follows: January: 1.25% February: 3.47% March: -2.36% April: 1.89% May: -2.67% June: 2.57% A. Calculate a time-weighted rate of return for the investment manager by chain-linking the monthly time-weighted returns. The time-weighted rate of return for the investment manager is: rtwr = (1 + 0.0125)(1 + 0.0347)(1 + [0.0236])(1 + 0.0189) (1 + [0.0267])(1 + 0.0257) 1 = 0.0405 or 4.05% B. Compare and contrast the time-weighted rate of return with a calculation involving adding the monthly rates of return. Adding the subperiod rates of return gives 0.0125 + 0.0347 + (0.0236) + 0.0189 + (0.0267) + 0.0257 = 0.0415 or 4.15 percent. Characteristically, the additive calculation gives a higher return number (4.15 percent) than the timeweighted calculation (4.05 percent). In general, the timeweighted rate of return is a better indicator of long-term performance because it takes account of the effects of compounding. 6. A U.S. large-cap value portfolio run by Anderson Investment Management returned 18.9 percent during the first three quarters of 2003. During the same time period, the Russell 1000 Value Index had returns of 21.7 percent and the Wilshire 5000 returned 25.2 percent. A. What is the return due to style? The return due to style is the difference between the benchmark and the market index, or S = (B M) = (21.7 percent 25.2 percent) = 3.5 percent. B. What is the return due to active management? The return due to active management is the difference between the portfolio and the benchmark, or A = (P B) = (18.9% 21.7%) = 2.8%. C. Discuss the implications of your answers to Parts A and B for assessing Anderson's performance relative to the benchmark and relative to the market. The implication of the style calculation is that large-cap value is out of favor: i.e., the Russell 1000 Value Index underperformed the Wilshire 5000 by 3.5 percent. In and of itself, this should not be a large concern for an investor with a properly diversified portfolio. Certain styles will periodically outperform and underperform the market index. The implication of the active management calculation is that Anderson is not adding value as compared to the benchmark, since its portfolio underperformed the portfolio benchmark. If Anderson is indeed a large-cap value manager and the Russell 1000 Value Index is an appropriate benchmark, then the client may be better off investing in the passive alternative. Of course, one period is not enough to make a judgment such as this. However, sustained underperformance of an active manager as compared to an appropriate benchmark should be cause for concern. Use the following information for Questions #1 and #2. Please refer to the following table of monthly returns for a hedge fund and an index portfolio. For the purpose of computation, the hurdle rate is the U.S. T-bill rate, assumed to be 4.5 percent per year. Month Hedge Fund Returns (%) Index Returns (%) January 3.40 2.30 February 4.00 4.00 March 2.10 1.70 April 2.00 3.00 May 1.20 4.40 June 0.90 2.00 July 1.00 2.50 August 1.50 1.90 September 3.00 1.70 October 4.00 1.00 November 0.90 3.20 December 3.00 0.50 A. Calculate the average rolling returns for the hedge fund if the investor's investment horizon is eight months. B. Explain how rolling returns can provide additional information about the hedge fund's performance. 2. Using the same information from Question #1, answer the following: A. Compute the annualized downside deviations for the hedge fund and the index, and contrast them to the standard deviation. The annualized standard deviations for the hedge fund and the index are, respectively, 8.54 percent and 9.17 percent. B. Compute the Sortino ratio and, based on this statistic, evaluate the performance of the hedge fund against the performance of the index portfolio. 3. An investment manager placed a limit order to buy 400,000 shares of Alpha Corporation at $21.25 limit at the opening of trading on February 8. The closing market price of Alpha Corporation on February 7 was also $21.25. The limit order filled 45,000 shares, and the remaining 355,000 shares were never filled. Some good news came out about Alpha Corporation on February 8, and its price increased to $23.40 by the end of that day. However, by the close of trading on February 14, the price had declined to $21.94. The investment manager is analyzing the missed trade opportunity cost using the closing price on February 8 as the benchmark price. A. What is the estimate of the missed trade opportunity cost if it is measured at a one-day interval after the decision to trade? B. What is the estimate of the missed trade opportunity cost if it is measured at a one-week interval after the decision to trade? C. What are some of the problems in estimating the missed trade opportunity cost? 4. A client of a broker evaluates the broker's performance by measuring transaction costs with a specified price benchmark. The broker has discretion over the timing of his trades for the client. Discuss what the broker could do to make his performance look good to the client (even though the broker's execution decisions may not be in the best interests of the client) if the price benchmark used by the client for evaluation is the: A. Opening price. B. Closing price. C. Volume-weighted average price (VWAP). 5. An investment manager has time-weighted returns for the first six months of the year as follows: January: 1.15% February: 4.57% March: -1.86% April: 2.29% May: -3.47% June: 4.37% A. Calculate a time-weighted rate of return for the investment manager by chain-linking the monthly time-weighted returns. B. Compare and contrast the time-weighted rate of return with a calculation involving adding the monthly rates of return. 6. A U.S. large-cap value portfolio run by Anderson Investment Management returned 19.8 percent during the first three quarters of 2013. During the same time period, the Russell 1000 Value Index had returns of 22.9 percent and the Wilshire 5000 returned 26.4 percent. A. What is the return due to style? B. What is the return due to active management? C. Discuss the implications of your answers to Parts A and B for assessing Anderson's performance relative to the benchmark and relative to the market