26. The Sharpe ratio of the Market Portfolio is 0.3. Suppose you have estimated the alpha...

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26. The Sharpe ratio of the Market Portfolio is 0.3. Suppose you have estimated the alpha of a stock to be -0.036 and the stock has unsystematic risk equal to 0.05 (). Unsystematic risk is measured by the variance of the residuals from the single-index model. Because of the non-zero alpha, you want to construct an Active Portfolio which, when combined with the Market Portfolio, will be expected to earn a superior Sharpe Ratio than the Market Portfolio alone. What is the Sharpe Ratio of your resulting Optimal Risks Portfolio P* comprising the combination of your Active Portfolio with the Market Portfolio? 26. The Sharpe ratio of the Market Portfolio is 0.3. Suppose you have estimated the alpha of a stock to be -0.036 and the stock has unsystematic risk equal to 0.05 (). Unsystematic risk is measured by the variance of the residuals from the single-index model. Because of the non-zero alpha, you want to construct an Active Portfolio which, when combined with the Market Portfolio, will be expected to earn a superior Sharpe Ratio than the Market Portfolio alone. What is the Sharpe Ratio of your resulting Optimal Risks Portfolio P* comprising the combination of your Active Portfolio with the Market Portfolio?