a) In your capacity as financial adviser, you are asked to consider the performance of the...

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a) In your capacity as financial adviser, you are asked to consider the performance of the Xenon and Zerad stocks in UK. The risk-free rate is 6% and the average return of the FTSE 100 is 14%. The following table shows the results obtained by regressing the excess stock returns on the excess returns of the FTSE 100 index: < Index model regression estimates < R-squared Residual standard deviation, (e) < Standard deviation of excess returns Xenon 1%+1.2(m-f) 0.576 Zerad 2%+0.8(fm- ff) < 0.436 10.3% < 19.1% 21.6% < 24.9% (i) (ii) Calculate the Jensen's alpha, the Treynor, and the Sharpe ratios as well as the information ratio for the Xenon and Zerad stocks. Explain and discuss whether the two stocks underperformed, or outperformed the FTSE 100 on a risk- adjusted basis using the Treynor and Sharpe ratios. < (40% weighting) < Which stock of the above is the best choice under the following circumstances? < This is the only risky asset to be held by the investor. < This is one of many stocks that the investor is analysing to form an actively managed stock portfolio < (20% weighting) < a) In your capacity as financial adviser, you are asked to consider the performance of the Xenon and Zerad stocks in UK. The risk-free rate is 6% and the average return of the FTSE 100 is 14%. The following table shows the results obtained by regressing the excess stock returns on the excess returns of the FTSE 100 index: < Index model regression estimates < R-squared Residual standard deviation, (e) < Standard deviation of excess returns Xenon 1%+1.2(m-f) 0.576 Zerad 2%+0.8(fm- ff) < 0.436 10.3% < 19.1% 21.6% < 24.9% (i) (ii) Calculate the Jensen's alpha, the Treynor, and the Sharpe ratios as well as the information ratio for the Xenon and Zerad stocks. Explain and discuss whether the two stocks underperformed, or outperformed the FTSE 100 on a risk- adjusted basis using the Treynor and Sharpe ratios. < (40% weighting) < Which stock of the above is the best choice under the following circumstances? < This is the only risky asset to be held by the investor. < This is one of many stocks that the investor is analysing to form an actively managed stock portfolio < (20% weighting) <