Hedge Fund Assignment
February 19th, 2020
A hedge fund called XYZ has the following monthly performance numbers:
| Year/
month |
Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 2007 | 2.0% | 0.2% | 4.0% | -2.3% | 5.0% | 0.6% | 3.0% | -0.7% | -0.1% | 2.5% | 0.3% | 4.0% |
| 2008 | 3.1% | 0.8% | -3.6% | 2.2% | 2.0% | 0.0% | 0.2% | 1.0% | -7.0% | -6.2% | 3.0% | 0.0% |
| 2009 | -2.5% | -2.5% | 6.0% | 3.4% | 0.0% | 8.0% | -1.4% | -0.3% | 5.0% | 0.0% | -0.4% | 4.0% |
The hedge fund manager calculates the following statistics for XYZ and the stock market MKT:
| Monthly | Annualized | |
| average(total return of XYZ) | 0.95% | 11.43% |
| average riskfree return | 0.18% | 2.16% |
| std(return XYZ) | 3.15% | 10.92% |
| average(total return MKT) | -0.19% | -2.31% |
r-rf = alpha + beta * (MKT – rf) + epsilon
| alpha of XYZ | 0.87% | 10.45% |
| beta | 0.25 | |
| std(epsilon) | 2.74% | 9.48% |
Using geometric returns, what is the maximum drawdown of XYZ?
Group of answer choices
7.0%
14.1%
12.8%
14.6%. Get Finance homework help today
