This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Cornell University Fall 2009 Economics 3330: Problem Set 8 Due 12/4/09 1. A hedge fund has a net asset value of $62 per share and a high water mark of $66. The standard deviation of the funds annual returns is 50% and the riskfree rate is 4%. The incentive fee is 20%. All answers should be given in terms of one year. a. According to BlackScholes, what is the value of the incentive fee? b. What would the incentive fee be worth if the fund had no high water mark? c. Suppose that the fund is contemplating a change in strategy that would increase the standard deviation of returns to 100%. How would your answers to (a) and (b) change under the new strategy? 2. Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is 0.7, while that of B is 1.4. The Tbill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%....
View
Full
Document
This note was uploaded on 12/22/2009 for the course ECON 3330 at Cornell University (Engineering School).
 '08
 MBIEKOP
 Economics

Click to edit the document details