A portfolio manager summarizes the input from the macro and micro forecasts in the following table:

Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%.

Instruction: enter your response as a decimal number rounded to four decimal places.

a) What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p))?

b) Whats the M2 of the optimal portfolio?

Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 20 1.50 60 Stock B 18 2.00 40 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 5 O Passive Equity Portfolio (m) 16 25