Assume that there are 2 investors with superior stock-picking ability and they are both tracking the...
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Assume that there are 2 investors with superior stock-picking ability and they are both tracking the same passive portfolio. Also, assume that they have the same forecast for the passive portfolio's expected return and variance. But they have different stocks in their active portfolio. The following data is given: Investor Alpha of active portfolio 1 2 -4% +3% Unsystematic risk of active portfolio (sigma) 24% 30% a. Which investor will have a higher Sharpe ratio for their optimal risky portfolio? Why? Show calculations. [I'm not asking you to compute Sharpe ratio for the 2 investors] Assume that there are 2 investors with superior stock-picking ability and they are both tracking the same passive portfolio. Also, assume that they have the same forecast for the passive portfolio's expected return and variance. But they have different stocks in their active portfolio. The following data is given: Investor Alpha of active portfolio 1 2 -4% +3% Unsystematic risk of active portfolio (sigma) 24% 30% a. Which investor will have a higher Sharpe ratio for their optimal risky portfolio? Why? Show calculations. [I'm not asking you to compute Sharpe ratio for the 2 investors]
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