Question: A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Macro Forecasts Asset Expected Return (%) Beta Residual Standard

A portfolio manager summarizes the input from the macro and micro forecasters in the following table:

Macro Forecasts
Asset Expected Return (%) Beta Residual Standard Deviation (%)
Stock A 21 1.2 57
Stock B 19 1.8 68
Stock C 16 1.0 62
Stock D 13 1.1 53

Macro Forecasts
Asset Expected Return (%) Standard Deviation (%)
T-bills 8 0
Passive equity portfolio 15 26

Calculate the following 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? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

Cost of restriction

b.

What is the utility loss to the investor (A = 3.3) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Cases Utility levels
Unconstrained %
Constrained %
Passive %

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