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 RATIO:

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 2.1? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

BILLS:____%

M____%

A______%

B_______%

C____-_%

D______%

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 (%) 21 1.6 18 1.8 16 13 1.3 Standard Deviation Macro Forecasts Expected Return Asset T-bills Passive equity portfolio 16 24 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 D Excess returns Alpha values Residual variances Stock 11 % 1.4% Stock B 8 % (2.8 % Stock C 6% 0.6% - (4.8) b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion 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 (%) 21 1.6 18 1.8 16 13 1.3 Standard Deviation Macro Forecasts Expected Return Asset T-bills Passive equity portfolio 16 24 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 D Excess returns Alpha values Residual variances Stock 11 % 1.4% Stock B 8 % (2.8 % Stock C 6% 0.6% - (4.8) b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion