SOLVE FOR M$2$ ONLY. $($PART B SECOND PART$)$

a$.$ Calculate expected excess returns, alpha values, and residual variances for these stocks.

Instruction: Enter your answer as a percentage $($rounded to two decimal places$)$ for expected excess returns

and alpha values.

Expected excess return on stock $A$

Expected excess return on stock $B$

Alpha of stock $A$

Alpha of stock B

$\%$

Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances.

Residual variance of stock $A$

Residual variance of stock $B$

Instruction: for part b$,$ enter your response as a decimal number rounded to four decimal places.

b$.$ Suppose that the portfolio manager follows the Treynor$-$Black model, and constructs an active portfolio $($p$)$ that

consists of the above two stocks. The alpha of the active portfolio $($p$)$ is $-18\%,$ and its residual standard deviation is

$150\%.$

What is the Sharpe ratio for the optimal portfolio $($consisting of the passive equity portfolio and the active portfolio

$($p$)?$

What's the $M^2$ of the optimal portfolio?