Section iv a small snippet of the latest james bond

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SECTION IV:A small snippet of the latest James Bond movie script- (Interior, daytime, in a haberdashery in central London. Q and M are shopping for hats) Q: HOW DO YOU LIKE THE CAP, M? Questions 9-11 (30 points total) Scott Appel was a rising star at Dudesox Capital Partners (DCP) a hedge fund specializing in long-short positions. Appel had been the manager for their flagship portfolio the Dudesox Fund and had been quite successful over the last few years. Appel was very interested in the possibility of adding Nike to his portfolio and studied the recent performance of the stock. Exhibit 4.1shows performance data for Nike for the last few months. Nike had a recent beta of 0.52 and a market capitalization of 66.3 Billion dollars. Appel believed that the company was poised to benefit from a strengthening economy. Appel had managed the Dudesox Fund since 2009 and his historical performance along with that of similar funds (whose names have been anonymized) and the overall market is shown in Exhibit 4.2. Data on the correlations among the funds and the markets over the 2009-2012 period are shown in Exhibit 4.3Scatter plots showing relationships between the three funds and the S&P 500 are shown in Exhibit 4.4Although the 2009-2012 period was short and a bit unusual, DCP used those numbers as their estimates for expected returns, standard deviations, and correlations going forward.2In addition, the firm expected that a risk-free asset would provide it with a return of 3% per year. Based on those expectations, the firm was deciding whether to keep Appel as the portfolio manager for the Dudesox Fund. Exhibit 4.1 Historical Performance Nike (Prices and Dividends are per share) Month High Price in Month Low Price in Month Closing Price in Month Dividends Paid in Month Average Daily Trading Volume June 2013 64.07 59.11 63.68 None 5,152,800 July 2013 64.66 61.90 62.92 None 3,355,800 August 2013 66.85 62.60 62.82 0.21 3238,400 September 2013 75.25 63.50 72.64 None 6,007,500 Exhibit 4.2 Historical data for selected Funds and the market (2009-2012) Fund Annual Average Return (Arithmetic) Standard Deviation Dudesox 0.240 0.350 Fund A 0.185 0.310 Fund B 0.282 0.450 S&P 500 0.175 0.250 Exhibit 4.3 Historical data for selected Funds and the market (2009-2012) Correlations Dudesox Fund A Fund B S&P 500 Dudesox 1.00 Fund A 0.24 1.00 Fund B 0.62 0.33 1.00 S&P 500 0.41 0.25 0.35 2Yes, I know it’s a BAD assumption, but humor me and go with it. If you need more reason to use those numbers, keep in mind that they are what I based the answer key on. . . 1.00
19 Exhibit 4.4 Scatter plots for selected Funds and the market Monthly returns (2009-2012)

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