A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Expected Residual Standard Return (%) Beta Deviation (%) 1.1 1.5 0.6 0.9 53 Asset Stock A Stock 3 Stock C Stock D 60 72 12 Macro Forecasts Expected Standard Asset Return (%) Deviation (%) T-bills Passive equity portfolio 18 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 D 41% Excess returns Alpha values Residual variances Stock A 15 % 8.4% 3,600 Stock B 8 % (1.0)% ,184 Stock C 6% 2.4% 3,969 I % (1.4 2,809 5 b. Compute the proportion in the optimal risky portfolio. (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 answers 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 answers 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 2.6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Expected Residual Standard Return (%) Beta Deviation (%) 1.1 1.5 0.6 0.9 53 Asset Stock A Stock 3 Stock C Stock D 60 72 12 Macro Forecasts Expected Standard Asset Return (%) Deviation (%) T-bills Passive equity portfolio 18 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 D 41% Excess returns Alpha values Residual variances Stock A 15 % 8.4% 3,600 Stock B 8 % (1.0)% ,184 Stock C 6% 2.4% 3,969 I % (1.4 2,809 5 b. Compute the proportion in the optimal risky portfolio. (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 answers 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 answers 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 2.6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions
