A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 22 1.50 40 Stock B 20 12.00 60 Asset T-bills Passive Equity Portfolio (m) Macro Forecasts Expected Return (%) 7 16 Standard Deviation (%) 0 25 a. Calculate expected excess returns, alpha values, and residual variances for these stocks. % Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values. Expected excess return on stock AS Expected excess return on stock BD % Alpha of stock AD % Alpha of stock BD Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances. Residual variance of stock AO Residual variance of stock B| Instruction: for part b, enter your response as a decimal number rounded to four decimal places. b. 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%. What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)? What's the M2 of the optimal portfolio? O A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 22 1.50 40 Stock B 20 12.00 60 Asset T-bills Passive Equity Portfolio (m) Macro Forecasts Expected Return (%) 7 16 Standard Deviation (%) 0 25 a. Calculate expected excess returns, alpha values, and residual variances for these stocks. % Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values. Expected excess return on stock AS Expected excess return on stock BD % Alpha of stock AD % Alpha of stock BD Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances. Residual variance of stock AO Residual variance of stock B| Instruction: for part b, enter your response as a decimal number rounded to four decimal places. b. 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%. What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)? What's the M2 of the optimal portfolio? O
