A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Expected Residual Return Standard Beta Deviation (8) 22 21 1.8 19 0.7 16 1.1 46 Asset Stock A Stock B Stock C Stock D 1.4 58 Macro Forecasts Expected Standard Return Deviation Asset (%) T-bills Passive equity portfolio 16 20 (3) a. Calculate expected excess returns, alpha values, and residual variances for these stocks. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values" to 1 decimal place.) Stock A Stock B Stock C Stock D Excess returns Alpha values Residual variances b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Sharpe ratio d. By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Active portfolio | e. What should be the exact makeup of the complete portfolio (including the risk-free asset) for an investor with a coefficient of risk aversion of 1.9? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills A B Total A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Expected Residual Return Standard Beta Deviation (8) 22 21 1.8 19 0.7 16 1.1 46 Asset Stock A Stock B Stock C Stock D 1.4 58 Macro Forecasts Expected Standard Return Deviation Asset (%) T-bills Passive equity portfolio 16 20 (3) a. Calculate expected excess returns, alpha values, and residual variances for these stocks. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values" to 1 decimal place.) Stock A Stock B Stock C Stock D Excess returns Alpha values Residual variances b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Sharpe ratio d. By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Active portfolio | e. What should be the exact makeup of the complete portfolio (including the risk-free asset) for an investor with a coefficient of risk aversion of 1.9? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills A B Total
