All sub-questions a) - k) relate to the following information: You are of the view that the market is not in a CAPM equilibrium. Therefore, you want to construct an Active Portfolio which, when combined with the Market Portfolio will be expected to eam a superior Sharpe ratio than the Market Portfolio alone The risk free rate in the market is 3% and the total return on the Market Portfolio is 8%. The risk of the Market Portfolio, measured by its standard deviation is 11% You believe the following 3 assets could form part of your Active Portfolio Stock A Stock B Stock C 06 1.1 1.5 Beta 6.0% 8.5% 140% Forecast Return Expected Risk (Standard Deviation) 18.80% 17.50% 26.50% This question (parts a-k) is worth 14 marks in total. For each part, if you enter the correct answer you will receive full marks (even if you don't show working). If you choose to show working, and get the answer incorrect, you may receive part marks. If you simply enter the incorrect answer and do not show working, you will not receive any part marks. a) Which stock or stocks (A, B and/or C) exhibit alpha, and if so, what is the alpha? (15 marks) Enter your answer to decimal places eg if your answer is 6,54% enter as 0.0654 b) Describe where each of the stocks A B and C would plot in relation to the Security Market Line (on the line over the line or below the line) (1 mark) c) of the three stocks, which stock or stocks would you include in the Active Portfolio. (0.5 marks) Font family Font size Paragraph