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A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Standard Asset Return (%) Beta
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 22 1.5 60 Stock B 19 1.8 72 Stock C 18 1.0 61 Stock D 13 1.0 56 Macro Forecasts Expected Return Asset (%) T-bills 9 Passive equity portfolio 17 Standard Deviation (%) 0 23 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. (Negative values should be indicated by a minus sign. 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 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.) 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 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: Micro Forecasts Residual Expected Standard Asset Return (%) Beta Deviation (%) Stock A 22 1.5 60 Stock B 19 1.8 72 Stock C 18 1.0 61 Stock D 13 1.0 56 Macro Forecasts Expected Return Asset (%) T-bills 9 Passive equity portfolio 17 Standard Deviation (%) 0 23 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. (Negative values should be indicated by a minus sign. 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 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.) 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 3.0? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills % M % A % B % C D % Total %
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