Question

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1.) Ricardo Juarez is purchasing a homeowners insurance policy. He is very concerned about inflation and wants to make determination about purchasing the optional inflation protection rider. He has identified several scenarios and wants to know how often he needs to revisit his coverage to maintain at least 80% of replacement cost. Base all calculations on an initial home value of $250,000 and initial coverage of 100% on the dwelling and contents.

a.) He believes that current housing prices will increase at 4% per year. How long will his coverage meet the 80% rule if he does not buy inflation protection? How long would he be covered if he purchases an inflation protection rider that offers annual compound increases of 3%?

2.) Your client has coverage of $90,000 on a dwelling.The replacement value of the dwelling is $ 125,000.The policy coinsurance requirement is 80%.The client has chosen of $500 deductible.Calcualte the amount of loss reimbursement a client should receive for each of the following losses.
a.)the amount of the loss is $ 60,000
b.)the amount of loss is $90,000
c.)the amount of loss is $ 120,000

Now assume that the client increases the amount of coverage to $105,000.To offset some of the premium increase,the client chose to increase the deductible to 4 1,050.The policy coinsurance requirement is 80%.The replacement value of the dwelling is $ 125,000.Calcualte the amount of loss reimbursement for each of the following losses..

a.)the amount of the loss is $ 90,000
b.)the amount of the loss is $ 105,000
c.)the amount of the loss is $ 120,000


Page 498-499 please separate this part from the top section …

1.) Use the following provided in the table below to calculate the weighted average before and after tax rate of return of this portion.


Asset         Allocation             Amount            Before tax      After tax
Fund A      Large growth         $75,000.00       9.00%            6.75%
Fund B      Mid value               $100,000.00    8.00%            6.00%
Fund C      Money market       $94,000.00      2.00%            1.50%
Fund D      Small growth          $14,000.00      12.00%          9.00%
Fund E      Small value            $35,000.00       4.00%          3.00%
Fund F      High quality bond   $45,000.00       3.00%          2.25%
Fund G      Low quality bond   $112,000.00      5.00%          3.75%


2.) Use the information shown in the following table to calculate the statistics below.

year   Portfolio return    Market return
1          12.00%                   9.00%
2          9.00%                     8.00%
3          22.00%                   19.00%
4          -4.00%                   -1.00%
5          2.00%                     5.00%
6          25.00%                   19.00%
7          15.00%                   15.00%
8         -6.00%                    -4.00%
9          1.00%                     9.00%

a.) Geometric average of portfolio and market
b.)arithmetic average of portfolio and market
c.)standard deviation of portfolio and market


3.) Use the Single asset statistic sheet within the portfolio analysis excel file found on the web site to calculate the following statistics using the data provided.

a.)Beta of each asset using the appropriate index provided.
b.)CAPM expected return of each asset using the appropriate index provided and a risk free rate of 0.25% .
c.)Jensen’s alpha of each asset
d.)Sharpe ratio of each asset
e.) Modigliani measure of each asset using the appropriate index provided
f.)Treynor index of each asset.


4.) Use the portfolio statistics sheet within the portfolio analysis excel file found on the web site to calculate the following statistics for both the rebalanced and non rebalanced portfolios and answer the questions.(to complete this question you will need to enter te following weights into the excel spreadsheet in the highlighted cells. U.S Large Caap=20%,U.S Mid cap 10%, U.S small cap=10%,U.S corporate bond=15%,U.S Gov’t Bond=15%,U.S Balanced =5%

Global equity=5%,non US equity 15% emerging Mkt equity =5%

a.)Beta expected return each asset using CAPM and Jensens alpha using the appropriate custom benchmark portfolio
b.)What do you notice about the difference in expected return and alpha between the two portfolios?
c.)Sharpe ratio and Treynor index
d.)Modigliani measure using the appropriate custom benchmark portfolio
e.)What do you notice about the difference in the two ratios and the Modigliani measure between the two portfolios?

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