A portfolio manager summarizes the input from the macro and micro forecasters in the following table: |
Micro Forecasts |
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Asset | Expected Return (%) | Beta |
Residual Standard Deviation (%) |
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Stock A | 24 | 0.9 | 58 | ||||
Stock B | 20 | 1.4 | 70 | ||||
Stock C | 19 | 0.7 | 61 | ||||
Stock D | 16 | 0.8 | 53 | ||||
Macro Forecasts |
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Asset | Expected Return (%) | Standard Deviation (%) | ||||
T-bills | 13 | 0 | ||||
Passive equity portfolio | 20 | 31 | ||||
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.Omit the "%" sign in your response.) |
Stock A | Stock B | Stock C | Stock D | |
Excess returns | % | % | % | % |
Alpha values | % | % | % | % |
Residual variances | ||||
b. |
Compute the proportion of risky assets invested in the active portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) |
Proportion |
c. |
What is Sharpe’s measure for the optimal portfolio and how much of it is contributed by the active portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) |
Sharpe's measure | |
Active portfolio | |
d. |
What should be the exact makeup of the complete portfolio for an investor with a coefficient of risk aversion of 2.9? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the % sign in your response.) |
Final Positions | |
Bills | % |
M | % |
A | % |
B | % |
C | % |
D | % |
Total | % |