S1 14 6. A portfolio manager provides the following inputs from the macro and micro forecasters: Stocks Expected returns Beta Residual standard deviation (%) 15 0.5 32 S2 17 0.7 40 S3 20 1.2 58 Treasury bill rate is 8% and Passive portfolio is providing 16% return with 24% standard deviation. i) Calculate the alpha values of each stock. ii) Construct an optimal Active portfolio. ili) Construct an optimal Risky portfolio. iv) What is the Sharpe's measure for the optimal Risky portfolio and how much of it is contributed by the Active portfolio? v) What should be the exact composition of the complete portfolio for an investor with a coefficient of risk aversion of 3? 14 S1 14 6. A portfolio manager provides the following inputs from the macro and micro forecasters: Stocks Expected returns Beta Residual standard deviation (%) 15 0.5 32 S2 17 0.7 40 S3 20 1.2 58 Treasury bill rate is 8% and Passive portfolio is providing 16% return with 24% standard deviation. i) Calculate the alpha values of each stock. ii) Construct an optimal Active portfolio. ili) Construct an optimal Risky portfolio. iv) What is the Sharpe's measure for the optimal Risky portfolio and how much of it is contributed by the Active portfolio? v) What should be the exact composition of the complete portfolio for an investor with a coefficient of risk aversion of 3? 14