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Arnold Jackson is the founder and CEO of Gammadyne Inc., a company that

manufactures processor chips for smartphones. His new investment advisor, Bettany

Davenport, schedules a meeting with him to discuss issues around his investment

portfolio. Jackson has previously undertaken the management of the portfolio himself

but has found that, as his business has grown, he has less and less time to devote to this

process.

Jackson has been rebalancing his portfolio to strategic $($target$)$ weights at the start of

each month, but Davenport strongly suggests that it would be preferable to adopt aBamford now considers the risk$-$adjusted performance of the equity elements of the

Turpin fund. The fund employs three equity managers.

He collects the following data for the past year:

Actual return from equity manager $1\text{'}$s component of the Turpin fund equities: $5\mathrm{.}53\%$

Actual return from S&P $500$: $4\mathrm{.}9\%$

Risk$-$free return: $3\mathrm{.}7\%$

Beta of manager $1\text{'}$s component of the Turpin fund equities: $1\mathrm{.}20$

Annualized standard deviation of manager l$\text{'}$s component of the fund's equities: $25\mathrm{.}8\%$

Annualized standard deviation of S&P $500$ returns: $10\mathrm{.}86\%$

Calculate manager's I ex$-$post alpha, the treynor measure,

the Sharpe Ratio and the M$2.$

$(2=2=2+2=8$ marks $)$

c$)$

Jackie Sprit has been asked to advise the Scotts University Endowment Fund on an

appropriate rebalancing strategy for its overall investment portfolio. Scotts University

has seen its endowment fund grow over the past five years due to good investment

performance and, as a consequence, the fund's willingness and ability to assume risk

have increased. The endowment fund receives little new funding each year.

Sprit's outlook is for a bull market in growth assets over the next three to five years.

He also believes that volatility will be below historical averages during that same time

period. The Investment Committee of the endowment fund has directed Sprit to

incorporate his views into his recommendation.

The Committee has stated that it does not want the market value of the portfolio to

decline more than $20\%$ below its current market value.

The committee is considering the following three rebalancing strategies:

i$.$ Constant$-$mix $(CM)$

ii$.$ Buy$-$and$-$hold $($B&H$)$

iii. Constant$-$proportion $($CPPI$)$

Determine which of the three rebalancing strategies Sprit

should recommend for the Scotts University Endowment

Fund $($State two reasons for your answers$)$

marks

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