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T-bill rate
Market return
Portfolio beta
Realized return
Solution
During a particular year, the T-bill rate was 6%, the market return was 14%, and
a portfolio manager with beta of .5 realized a return of 10%. Evaluate the
manager based on the portfolio alpha.
Primo Management Co. is looking at how best to evaluate the performance of its managers. Primo has been
hearing more and more about benchmark portfolios and is interested in trying this approach. As such, the
company hired Sally Jones, CFA, as a consultant to educate the managers on the best methods for constructing
As part of her analysis, Jones also takes a look at one of Primo’s global funds. In this particular portfolio, Primo
is invested 75% in Dutch stocks and 25% in British stocks. Th e benchmark invested 50% in each—Dutch and
British stocks. On average, the British stocks outperformed the Dutch stocks. Th e euro appreciated 6% versus
Solution
Weight Return Selection
Style Category Primo
Benchmark
Primo Benchmark Effect
Large-cap growth 0.00%
What is the within-sector selection effect for
each individual sector?
Solution
Weight Return Selection
Style Category Primo
Benchmark
Primo Benchmark Effect
Large-cap growth 0.00%
Mid-cap growth 0.00%
Small-cap growth 0.00%
Total 0.00%
Solution
Primo return 0.00%
Benchmark return 0.00%
Over (Under) 0.00%
Calculate the amount by which the Primo portfolio
out- (or under-) performed the market over the
period, as well as the contribution to performance
of the pure sector allocation and security selection
decisions.
Stock Price $ -
Strike $ - -
Interest rate
St. Dev.
Time to X (% of yr)
Solution
d1 #DIV/0!
d2 #DIV/0!
Historical data suggest the standard deviation of an all-equity strategy
is about 5.5% per month. Suppose the risk-free rate is now 1% per
month and market volatility is at its historical level. What would be a fair
monthly fee to a perfect market timer, according to the Black-Scholes
formula?
