Question
A portfolio manager summarizes the input from the macro and micro forecasters in the following table. Micro Forecasts Assets Expected Return (%) Beta Residual Standard
A portfolio manager summarizes the input from the macro and micro forecasters in the following table.
| Micro Forecasts | |||
| Assets | Expected Return (%) | Beta | Residual Standard deviation (%) |
| Stock A | 20% | 1.30 | 58.0% |
| Stock B | 18% | 1.80 | 71.0% |
| Stock C | 17% | 0.70 | 60.0% |
| Stock D | 12% | 1.00 | 55.0% |
| Macro Forecasts | |||
| Asset | Expected Return (%) | Beta | Residual Standard deviation (%) |
| T-bills | 8% | 0.00 | 0% |
| Passive Portfolio(M) | 16% | 1 | 23% |
- Calculate expected excess returns, alpha values, and residual variances for these stocks.
- Construct the optimal risk portfolio, which is composed of risk-free rate, passive market portfolio and active portfolio of Stock A-D.
- What is the Sharpe Ratio for the Optimal Portfolio that you find in Part b?
- By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy?
- What should be the exact components of the complete optimal Portfolio for an investor with a coefficient of risk aversion of 2.8?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Why And How Of Auditing Auditing Made Easy
Authors: Charles B. Hall
1st Edition
0578519739, 978-0578519739
