A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 24 1.2 64 Stock B 22 2.0 74 Stock C 21 0.8 63 Stock D 16 1.0 58 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 8 0 Passive equity portfolio 20 25

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.)

b. Compute the proportion in the active portfolio and the passive index. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

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 answer as decimals rounded to 4 places.)

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 3.0? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Asset Stock A Stock B Stock c Stock D Micro Forecasts Residual Expected Standard Return (%) Beta Deviation (%) 24 1.2 64 22 2.0 74 21 0.8 63 16 1.0 58 Macro Forecasts Expected Return (%) 8 Standard Deviation (%) 0 Asset T-bills Passive equity portfolio 20 25 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 active portfolio and the passive index. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion in Active Portolio Proportion in Passive Index c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answer 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 answer as decimals rounded to 4 places.) Improvement in Sharpe ratio 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 3.0? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills M A % B % | C % % D Total % A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Asset Stock A Stock B Stock c Stock D Micro Forecasts Residual Expected Standard Return (%) Beta Deviation (%) 24 1.2 64 22 2.0 74 21 0.8 63 16 1.0 58 Macro Forecasts Expected Return (%) 8 Standard Deviation (%) 0 Asset T-bills Passive equity portfolio 20 25 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 active portfolio and the passive index. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion in Active Portolio Proportion in Passive Index c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answer 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 answer as decimals rounded to 4 places.) Improvement in Sharpe ratio 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 3.0? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills M A % B % | C % % D Total %