Question
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 7.1% and 8.3%, respectively. The
Based on current dividend yields and expected capital gains, the expected rates of return on portfoliosAandBare 7.1% and 8.3%, respectively. The beta ofAis .6, while that ofBis 1.5. The T-bill rate is currently 4%, while the expected rate of return of the S&P 500 index is 8%. The standard deviation of portfolioAis 21% annually, while that ofBis 42%, and that of the index is 31%.
a.If you currently hold a market index portfolio, what would be the alpha for PortfoliosAandB?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal place.)
b-1.If instead you could investonlyin bills andoneof these portfolios, calculate the sharpe measure for PortfoliosAandB.(Enter your answer as a decimal rounded to 2 decimal places.)
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