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The risk free rate is 4.75% and a portfolio has a sensitivity to the risk factors outlined in the table below. Using the information provided,
The risk free rate is 4.75% and a portfolio has a sensitivity to the risk factors outlined in the table below. Using the information provided, to 2 decimal places, answer the following questions. (Note: numbers in red are negative) Factor Equity Risk Premium SmB HmL Sensitivity s = -0.34 h = 0.81 Risk premium 17.11% 4.26% 7.33% Required A portfolio delivered a return of 26.11%pa over a five year period. An asset consultant uses the Capital Asset Pricing Model to assess manager performance, while the investment manager assesses its performance using the Fama-French model According to the investment manager, how much Carhart alpha did the portfolio generate over the period? (5 marks) If the asset consultant assessed that the investment manger generated 2.53%pa of Jensen's alpha over the period, what value of beta is the consultant using for the portfolio? (5 marks) If, over the period, the market had a variance of 0.0387 whilst the portfolio had a variance of 0.0531, and using the consultant's value for beta, what must be the correlation of the portfolio with the market? (2 marks)
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