17.?A portfolio manager summarizes the input from the macro and micro forecasts in the following table:

Micro Forecasts
Asset	Expected Returns (%)	Beta	Residual Standard Deviation (%)
Stock A	20	1.3	58
Stock B	18	1.8	71
Stock C	17	0.7	60
Stock D	12	1.0	55

Macro Forecasts
Asset	Expected Return (%)	Standard Deviation (%)
T-bills	8	0
Passive Equity Portfolio	16	23

a. Calculate expected excess returns, alpha values, and residual variance for these stocks.

b. Construct the optimal risky portfolio.

c. What is Sharpes measure for the optimal portfolio and how much of it is contributed by the active portfolio?

d. What should be the exact makeup of the complete portfolio for an investor with a coefficient of risk aversion of 2.8?

18.) Recalculate Problem 17 for a portfolio manager who is not allowed to short sell securities.

a.) What is the cost of the restriction in terms of Sharpes measure?

b.) What is the utility loss to the investor (A=2.8) given his new complete portfolio?

19.) Suppose that on the basis of the analysts past record, you estimate that the relationship between forecast and actual alpha is:

Actual abnormal return = 0.3 * Forecast of Alpha

Use the alphas from Problem 17. How much is expected performance affected by recognizing the imprecision of alpha forecasts?