Questions:

B.) Compute the proportion in the optimal risky portfolio.

C.) What is the Sharpe ratio for the optimal portfolio?

D.) By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy?

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 3.0?

A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Standard Return Deviation (%) (% Asset Beta Stock A 27 0.8 59 Stock B 12 1.2 69 Stock C 11 0.5 62 Stock D 9 0.6 54 Macro Forecasts Standard Expected Deviation Return |(%) (8) Asset T-bills 9 12 Passive equity portfolio 20 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 A Stock C Stock D Stock B 21 % 6% 5 % 3% Excess returns 16.2 % 2.0% (0.6) % |(1.2)% Alpha values 3,844 Residual variances 3,481 4,761 2,916 A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Residual Expected Standard Return Deviation (%) (% Asset Beta Stock A 27 0.8 59 Stock B 12 1.2 69 Stock C 11 0.5 62 Stock D 9 0.6 54 Macro Forecasts Standard Expected Deviation Return |(%) (8) Asset T-bills 9 12 Passive equity portfolio 20 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 A Stock C Stock D Stock B 21 % 6% 5 % 3% Excess returns 16.2 % 2.0% (0.6) % |(1.2)% Alpha values 3,844 Residual variances 3,481 4,761 2,916