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

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

Micro Forecasts
Asset Expected Return (%) Beta Residual Standard Deviation (%)
Stock A 21 1.4 51
Stock B 18 2.0 62
Stock C 17 1.2 54
Stock D 13 1.3 44

Macro Forecasts
Asset Expected Return (%) Standard Deviation (%)
T-bills 10 0
Passive equity portfolio 15 24

Compute the proportion in the optimal risky portfolio.

What is the Sharpe ratio for the optimal portfolio?

By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy?

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