Use the three portfolios shown below to answer questions 58

5. Based on beta, which portfolio has the highest level of systematic risk? Show your work.

6. If the risk-free rate is 5.5 percent, which of these portfolios has the highest reward-to-risk ratio? Show your work.

7. Suppose that the risk-free rate is 5.5 percent, the return over a three-year period for each portfolio matches its expected return, and the portfolios have 3-year annual return standard deviations as follows: Portfolio 1 22% Portfolio 2 26% Portfolio 3 18%

If you were restricted to selecting one of the three portfolios to invest all your money in, which should you choose based on that portfolio having the best ratio of excess return per unit of total risk as measured by its Sharpe ratio?

8. Suppose that the actual returns for Portfolios 1, 2, and 3 were as follows: Portfolio 1 11.3 Portfolio 2 12.5 Portfolio 3 9.4 Also assume that the risk-free rate was 5.5 percent and the average return on the market portfolio was 8 percent. a. Which of the three portfolios has the highest Jensens alpha? Show your work. b. Which has the highest Treynor ratio? Show your work.

Portfolio 1 Security Amount InvestedExpected Return Beta $ 4,000 996 Security A 80 1.15 Security B $ 5,000 12% Security C 12,000 14% 95 Security D 15% 1.23 S 8,000 Portfolio 2 Amount InvestedExpected Return Beta 3,000 16% 1.22 Security A Security B $ 11,000 13% 1.54 8% .87 Security C s 9,000 6,000 81 Security D 11% Portfolio 3 Beta Security Amount Invested Expected Return 10% 1.72 $15,000 Security A 9% .81 $12,000 Security B 3,000 1296 Security C 72 15% 1.54 $ 2,000 Security D