Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Asset Stock A Stock B Stock C Stock D

image text in transcribed

A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Asset Stock A Stock B Stock C Stock D Micro Forecasts Expected Residual Standard Return (%) Beta Deviation (%) 24 0.9 58 20 1.4 19 0.7 0.8 16 Standard Deviation Macro Forecasts Expected Return Asset T-bills 13 Passive equity portfolio 20 31 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. (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 7 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 2.9? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills Total A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Asset Stock A Stock B Stock C Stock D Micro Forecasts Expected Residual Standard Return (%) Beta Deviation (%) 24 0.9 58 20 1.4 19 0.7 0.8 16 Standard Deviation Macro Forecasts Expected Return Asset T-bills 13 Passive equity portfolio 20 31 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. (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 7 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 2.9? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills Total

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Derivatives And Internal Models

Authors: Hans Peter Deutsch, Mark W. Beinker

5th Edition

3030229017, 9783030229016

More Books

Students also viewed these Finance questions