Question
Problem 8-18 A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected Return (%) Beta
Problem 8-18
A portfolio manager summarizes the input from the macro and micro forecasters in the following table: |
Micro Forecasts | |||||||
Asset | Expected Return (%) | Beta | Residual Standard Deviation (%) | ||||
Stock A | 20 | 1.3 | 58 | ||||
Stock B | 18 | 1.8 | 71 | ||||
Stock C | 17 | 0.7 | 60 | ||||
Stock D | 12 | 1.0 | 55 | ||||
Macro Forecasts | ||||||
Asset | Expected Return (%) | Standard Deviation (%) | ||||
T-bills | 8 | 0 | ||||
Passive equity portfolio | 16 | 23 | ||||
Calculate the following for a portfolio manager who is not allowed to short sell securities. |
a. | What is the cost of the restriction in terms of Sharpes measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) |
Cost of restriction |
b. | What is the utility loss to the investor (A = 2.8) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
Cases | Utility levels |
Unconstrained | % |
Constrained | % |
Passive | % |
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