A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Standard Asset Return () Beta Deviation (S) Stock A 23 1.8 Stock B 20 2.5 Stock C 18 1.6 Stock D 9 1 .7 53 Macro Forecasts Expected Standard Return Deviation (3) T-bills Passive equity portfolio 26 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 2.8? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Final Positions A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Standard Asset Return () Beta Deviation (S) Stock A 23 1.8 Stock B 20 2.5 Stock C 18 1.6 Stock D 9 1 .7 53 Macro Forecasts Expected Standard Return Deviation (3) T-bills Passive equity portfolio 26 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 2.8? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Final Positions
