There are three stocks in a market index. A sells for $20/share. B sells for $50

Question

There are three stocks in a market index. A sells for $20/share. B sells for $50/share and C sells for $100/share. All stocks go up by $5/share. If A is half the index in market value and B and C are 25% each, what is the change in the index?

Suppose a money manager has an average monthly return of 2.20%/month over the past two years. The market’s return has averaged 1.50%/month, the riskfree rate has averaged 0.30%/month, and the portfolio’s beta is estimated to be 1.20. What is the average excess return of this manager (after accounting for risk)? Please note: write the answer with at least two decimal places, and if the answer is 0.73% write 0.73 in the box below)

Explanation / Answer

% change in value of A = 5/20 = 25%

% change in B = 5/50 = 10%

% change in C = 5/100 = 5%

% change in Index = 0.5*25% + 0.25*10% + 0.25*5% = 16.25%

excess return of money manager = 2.20% - 0.3% - 1.2*(1.5-0.3)% = 0.46%

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