Question 3 Your big brother gave you a gift. The conditions of the gift are as follows: - Your big brother promised you that a year from now he will buy for $10,000 an ETF that tracks the global real estate industry (your big brother always keeps his promises). - Your big brother will sell the ETF three years later (four years from today) and will give you all the money from this sale. His intention is that you will get the money only 4 years from now because he does not trust your judgment at this point in your life (and as we will discover later in this question - he is right). You know the following information: 1) The annual risk free rate is 1.5%. You expect that this risk free rate will stay constant over the next 4 years. 2) The expected annual return on the global real estate industry for the next 4 years is 8%. 3) The expected annual return on the S&P 500 for the next 4 years is 10%. 4) All your assets are invested in a portfolio with a beta of 1.2. Even though you respect your big brothers wishes, you want to use the money now. Therefore, you want to sell his gift, but get the fair price for it. a) What is the value of your bog brothers gift one year from today (at n=1)? ( b) What is the expected value of the gift 4 years from today (at n=4)? c) What is the minimum price at which you will be willing to sell your big brother's gift today (that is, what is the value of this present today)? (

Question. 4

Larry is your old, trusted money manager. Currently, Larry manages all your funds. Last year Larry earned a return of 12% (=12%). In addition, you also know the following information: =20% =2 ()=7% =9% =2% a. Calculate Larrys Sharpe ratio and Treynor ratio. b. If you want to evaluate Larrys performance, what is the relevant performance measure, and why? c. Larrys contract states that at the end of each year he is entitled to a $20,000 annual bonus if he manages the funds efficiently. Does he deserve the bonus for this year? Explain and support your answer with calculations.