Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The risk - free interest rate is zero and the mutual funds claim to deliver the following gross returns: rtpassive fund before fees = rtstock

The risk-free interest rate is zero and the mutual funds claim to deliver the following gross returns:
rtpassive fund before fees = rtstock index =6%+ ut
rtactive fund before fees =1.80%+1.1* rtstock index +\epsi t
where the error terms ut and \epsi t are independent over time and of each other, have zero means E(ut)= E(\epsi t)=0, and volatilities of var(ut)=15% and (var(\epsi t)=4%. The hedge fund uses the same strategy as the active mutual fund, but implements the strategy as a long-short hedge fund, applying 4 times leverage, generating the following return before fees:
rthedge fund before fees =4*(rtactive fund before fees rtstock index)
Question 2
What is the hedge funds beta?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Of Health Care Organizations

Authors: William N. Zelman, Michael J. McCue, Noah D. Glick

3rd Edition

0470497521, 9780470497524

More Books

Students also viewed these Finance questions

Question

Outline four general characteristics of Wundts thought.

Answered: 1 week ago

Question

Id probably just get more upset. Its bett er to just drop it.

Answered: 1 week ago