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 (%) Stock A 25 1.5 50 Stock B 20 1.9 67 Stock C 19 0.8 56 Stock D 14 1.0 51 Macro Forecasts Expected Standard Return Deviation Asset (%) T-bills 8 0 Passive equity portfolio 18 24 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 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 (%) Stock A 25 1.5 50 Stock B 20 1.9 67 Stock C 19 0.8 56 Stock D 14 1.0 51 Macro Forecasts Expected Standard Return Deviation Asset (%) T-bills 8 0 Passive equity portfolio 18 24 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
