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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 Return Standard (%) Beta Deviation (%) 21 1.4 51 18 2.0 62 17 1.2 54 13 1.3 44 Macro Forecasts Expected Standard Return Deviation Asset (%) (%) T-bills 10 0 Passive equity portfolio 15 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 B Stock C Excess returns Alpha values Residual variances Stock A (373) % % % % % % Stock D % % b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion 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 portfolio 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 3.6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Bills M A Final Positions % % % % % % % B 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 Return Standard (%) Beta Deviation (%) 21 1.4 51 18 2.0 62 17 1.2 54 13 1.3 44 Macro Forecasts Expected Standard Return Deviation Asset (%) (%) T-bills 10 0 Passive equity portfolio 15 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 B Stock C Excess returns Alpha values Residual variances Stock A (373) % % % % % % Stock D % % b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Proportion 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 portfolio 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 3.6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Bills M A Final Positions % % % % % % % B D Total
