A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Return Standard Deviation Asset Stock (8) Beta (8) 21 1.2 57 Stock 19 1.8 68 Stock 16 1.0 62 C Stock 13 1.1 53 ro Fort Expected Standard Return Deviation Asset () B () T-bills C Passive equity portfolio 15 26 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 calcu lations. Round "Alpha values" to 1 decimal place.) Stock A Stock B % % Stock D Stock C 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 actlve 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 3.3? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills % B % Total A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Return Standard Deviation Asset Stock (8) Beta (8) 21 1.2 57 Stock 19 1.8 68 Stock 16 1.0 62 C Stock 13 1.1 53 ro Fort Expected Standard Return Deviation Asset () B () T-bills C Passive equity portfolio 15 26 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 calcu lations. Round "Alpha values" to 1 decimal place.) Stock A Stock B % % Stock D Stock C 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 actlve 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 3.3? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Final Positions Bills % B % Total
